HEMANT R. SANGHAVI, MUMBAI V. ASST CIT 16(2), MUMBAI

ITA 178/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8618 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 12-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SONAKSHI JHUN JHUNWALA
• Assessee Lawyers: YOGESH A THAR
• Keywords: Bogus purchase; Question of law
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 178 / MUM/20 16 ( ASSESSMENT YEAR : 2009 - 10 ) SHRI HEMANT R. SANGHAVI D - 502, KUKREJA PALACE VALLABH BAUG LANE EXTENSION - GHATKOPAR (E) MUM BAI 400 075 VS. ASST. CIT 16(2) R.NO.210, 2 ND FLOOR MATRU MANDIR, TARDEO ROAD MUMBAI 400 007 PAN/GIR NO. AAGPS4816C APPELLANT ) .. RESPONDENT ) ITA NO. 58/ MUM/20 16 ( ASSESSMENT YEAR : 2009 - 10 ) ASST. CIT 19(1) 2 ND FLOOR, MATRU MANDIR TARDEO ROAD, MUMBAI 400 007 VS. SHRI HEMANT R. SANGHAVI 411, ARIHANT BUILDING, 4 TH FLOOR, AHMEDABAD STREET CARNAC BUNDER, MUMBAI 400 009 PAN/GIR NO. AAGPS4816C APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI YOGESH A THAR REVENUE BY MS. SONAKSHI JHUNJHUNWALA DATE OF HEARING 09 / 11 /201 7 DATE OF PRONOUNCEME NT 20 / 11 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 30, MUMBAI DATED 26/10/2015 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 2 2. IN THE APPEALS SO FILED BY AS SESSEE AND REVENUE ARE RELATING TO ADDITION ON ACCOUNT OF BOGUS PURCHASES. THE AO HAS MADE AN ADDITION OF 100% BOGUS PURCHASES WHEREAS CIT(A) HAS REDUCED IT TO THE EXTENT OF 7.5%. 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN BUSINESS OF IMPORT AND SALE OF IRON AND STEEL. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 29/09/2009 DECLARING TOTAL INCOME OF RS.93,55,210/ - . ASSESSMENT W AS REOPENED U/S 148 OF THE ACT ON THE BASIS OF THE INFORMATION RECEIVED THAT THE ASSESSEE WAS INVOLVED IN MAKING BOGUS PURCHASES THROUGH HAWALA DEALERS AND ON ENQUIRY THE ADDRESS OF THE PARTIES WERE INCORRECT AND ALSO SUCH PARTIES WERE NOT TRACEABLE. THE A SSESSMENT WAS COMPLETED U/S 143(3) R.W.S 147 OF THE ACT BY THE AO ON 21/03/2014 DETERMINING THE TOTAL INCOME AT RS.2,16,99,640/ - . 4. BY THE IMPUGNED ORDER CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% AND ALSO OBSERVED THAT SINCE ASSESSEE HAS DECLA RED AVERAGE GP OF 5% AFTER REDUCING 5% FROM 12.5% , HE UPHELD NET ADDITION TO THE EXTENT OF 7.5% (I.E.12.5% - 5%) . 5. AGAINST THE ABOVE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 6. IT WAS ARGUED BY LEARNED AR THAT ASSESSEE HAD RECEIVED THE GOODS IN ITS WAREHOUSE FOR WHICH THE ASSESSEE HAS PAID TRANSPORT AS WELL AS LOADING/UNLOADING CHARGES. THE PAYMENTS FOR SUCH CHARGES HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES AFTER DEDUCTION OF TAX AT SOURCE, IF ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 3 APPLICABLE. FURTHER, TH E ASSESSEE SUBMITS THAT THE STOCK STATEMENT MAINTAINED CONFIRMING THE INWARD MOVEMENT OF GOODS WAS ALSO MAINTAINED. ALL THE DOCUMENTS IN SUPPORT OF SUCH CLAIM (SUCH AS INVOICE FROM PURCHASER, STOCK SHEET PAGE, TRANSPORT INVOICE, UNLOADING INVOICE, BANK STA TEMENT) ARE ATTACHED IN THE FACTUAL PAPER BOOK ('FPB') FILED ON NOVEMBER 01, 2017 . 7. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. NIKUNJ EXIMP ENTERPRISES (P.) LTD. (372 ITR 619) [REFER PAGE NO 77 TO 78 OF LEG AL PAPER BOOK ('LPB') ATTACHED HEREWITH AS ANNEXURE I] WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS UPHELD THE FINDINGS OF THE TRIBUNAL THAT WHERE THE ASSESSEE FILED LETTERS OF CONFIRMATION OF SUPPLIERS, COPIES OF BANK STATEMENT SHOWING ENTRIES OF PAYMENT THR OUGH ACCOUNT PAYEE CHEQUES TO SUPPLIERS AND STOCK RECONCILIATION STATEMENTS, SALE OF PURCHASED GOODS WAS NOT DOUBTED, THE TRANSACTIONS WERE SUPPORTED WITH EVIDENCES AND CONFIRMATIONS, IN SUCH AN EVENT MERELY BECAUSE THE SUPPLIERS HAVE NOT APPEARED BEFORE T HE AO OR THE CIT(A), ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT GENUINE. 8. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS WHEREIN IT WAS HELD THAT ADDITION ON THE BASH THAT THE PARTIES WERE NOT PRODUCED BEFORE THE LD. AO A ND THE SUMMO NS RETURNED UNSERVED IS NOT SUST AINABLE: CIT V. NAGALIA FABRICS (P.) LTD. (40 TAXMANN. :OM 206) (GUJ.) ACIT V. TARLA R SHAH (ITA NO. 5295/M/20I3 (MUM.) ITO V. VAMAN INTERNATIONAL (P.) LTD (ITA NO. 754/M/2015) (MUM.) BALAJI TEX TILE INDI A PRIVATE LIMITED V. THIRD ITO ( 49 ITD 1 77) (MUM.) ITO V. KARSAN NANDU (77 TAXMANN.COM 275) (MUM) ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 4 GEOLIFE ORGANICS V. ACIT (ITA NO. 3699/M/16) (MUM) ACIT V MAHESH K. SHAH (5194/MUM/2014) (MUM.) RAJESH P. SONI V. ACIT (100 TTJ 892) (AHMD .) 9. AS PER LEARNED AR IN TERMS OF FOLLOWING DECISIONS WHEREIN IT WAS HELD THAT ADDITION ON THE BASIS OF GENERAL STATEMENTS/AFFIDAVITS BEFORE THE SALES TAX DEPARTMENT WITHOUT IMPLICATING THE ASSESSEE IS NOT SUSTAINABLE: CIT V. M.K. BROTHERS (1987) (30 T AXMAN 547) (GUJ.) ACIT V. M/S. PARSHVA ENTERPRISES (ITA. NO. 5288/M/2013) (MUM.) DCIT V. SHRI SHIVSHANKAR R. SHARMA (ITA NO. 5149/M/20I4) (MUM) ITO V VAMAN INTERNATIONAL (P.) LTD (ITA NO. 794/M/201 5) (MUM) SHRI JIGAR VINAYCHANDRA SHAH V. ITO (ITA NO. 1 223/M/2014) (MUM) ITO V. M/S. UNI PACKS (INDIA) (ITA NO. 5239/M/20I3) (MUM) DCITV. RAJEEV G. KALATHI L(51 TAXMANN.COM 514) (MUM.) 10. AS PER LEARNED AR DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD PRODUCED COPIES OF STOCK STATEMENTS CONFI RMING THE INWARD MOVEMENT OF GOODS AND COPIES OF INVOICES OF THE TRANSPORT AS WELL AS UNLOADING CHARGES INCURRED BY THE ASSESSEE . THE AFORESAID EVIDENCE HAS NOT BEEN REJECTED BY THE AO OR EVEN BEING COMMENTED UPON. THE ASSESSEE HUMBLY SUBMITS THAT SINCE TH E SALES AS WELL AS THE STOCK STATEMENTS HAVE NOT BEEN REJECTED BY THE AO, THE PURCHASES MADE BY THE ASSESSEE CANNOT BE TREATED AS BOGUS AS NO SALES CAN BE AFFECTED IF THERE ARE NO PURCHASES. THE ASSESSEE WOULD LIKE TO RELY ON THE FOLLOWING DECISIONS TO FUR THER HIS CASE: NIKUNJ EXIMP ENTERPRISES PVT. LTD. (372 ITR 619) (BOM) CIT VS. NANGALIA FABRICS PVT. LTD (40 TAXMANN.COM 206) (GUJ.) BALAJI TEXTILE INDUSTRIES P. LTD. V. THIRD INCOME - TAX OFFICER (49 ITD 177) (MUM.) RAJESHP. SONI VS. ACIT (100 TTJ 892) (AHMD.) ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 5 11. AS PER LEARNED AR , T HE LD. CIT(A) HAS UPHELD THE PROPORTIONATE DISALLOWANCE TO THE EXTENT OF 7.5% {12.5% - 5% (GP ALREADY ADMITTED)} FOLLOWING THE DECISION OF HIS PREDECESSOR FOR AY 2010 - 11. THE LD. CIT(A) WHILE UPHOLDING TH E PROPORTIONATE DISALLOWANCE FOR AY 2010 - 11 HAD RELIED UPON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT SETH (356 ITR 451) . HOWEVER, THE HON'BLE GUJARAT HIGH COURT WHILE DECIDING THE APPEAL HAS HELD THAT TRIBUNAL ONLY ESTIMAT ED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON - GENUINE PARTIES AND THUS NO QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE HON'BLE AHEMDABAD TRIBUNAL IN ITA NO. 3238 & 3293/AHD/2009 WHILE DECIDING THE APPEAL HAS CATEGORICALLY HELD THAT MALPRA CTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX. 'HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE BEEN INFORMED THAT THE THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC IT HAS ALSO BEEN INFORMED THAT IN THIS INDUSTRY ABOU T 2.5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DIRECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% OF THE PURCHASES FROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DECIDE. THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED.' , . (EMPHASIS SUPPLIED) 12. THE ASSESSEE WOULD THUS LIKE TO SUBMIT THAT THE APPLICABLE SALES TAX RATE IN MAHARASHTRA FOR IR ON AND STEEL IS 4% AND THE GROSS PROFIT PERCENTAGE DECLARED BY THE APPELLANT IS 5%. THUS, THE TOTAL DISALLOWANCE TO BE MADE, MAY, AT BEST, BE RESTRICTED TO 1.5% [4% + 2.5% (INDUSTRY AVERAGE RATE OF PROFIT) - 5% (ALREADY OFFERED)]. ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 6 13. ON THE OTHER HAND, L EARNED DR RELIED ON THE ORDER OF THE AO AND CONTENDED THAT ENTIRE AMOUNT OF BOGUS PURCHASES SHOULD BE ADDED IN ASSESSEES INCOME. 14. WE FOUND THAT EXACTLY ON THE SIMILAR ISSUE OF BOGUS PURCHASES, THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A.Y.2010 - 11 H AS UPHELD THE ADDITION OF 7.5% ON ACCOUNT OF SUCH BOGUS PURCHASES VIDE ITS ORDER DATED 17/02/2017. THE PRECISE OBSERVATION OF THE TRIBUNAL WAS AS UNDER: - 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT IN THIS CASE THE CIT(A) HAS CONSIDERED THAT QUANTITY DETAILS WERE MAINTAINED AND ASSESSING OFFICER HAS NO DOUBT ABOUT THE GENUINENESS OF THE SALES. THEREFORE ADDITION IN RESPECT OF THE MIX CREDIT BALANCES ON PURCHASE SUBJECT WHEN THE AO HIMSELF RECORDED THE EVIDENCE THAT ASSESSEE HAS MADE THE PURCHASE FROM SOME OTHER PARTY. THEREFORE WHAT CAN BE ADDED IS THE PROFIT EMBEDDED IN BOGUS PURCHASES WHICH ARE TO BE ADDED. THE CIT(A) HAS CONSIDERED THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE BHOLANATH POLY FAB PVT. LTD. 355 ITR 290 (GUJ) WHEREIN THE GUJARATH HIGH COURT HAS HELD PURCHASES FROM THE BOGUS PARTY AND IF PARTY WAS NOT PRODUCED BEFORE THE AO FOR CONFIRMATION THE ONLY PROFIT ELEMENT CAN BE ADDED, IN THAT CASE THE TRIBUNAL HAS HE LD THAT THE PURCHASE WERE MADE FROM THE BOGUS PARTIES, NEVERTHELESS, THE PURCHASES THEMSELVES WERE NOT BOGUS TO THE ENTIRE QUANTITY OF OPENING STOCK, PURCHASES AND SALES WERE TALLYING AND HENCE ONLY THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE SUBJEC TED TO TAX. THE GUJARAT HIGH COURT HAS CONSIDERED THAT WHETHER PURCHASES THEMSELVES ARE BOGUS OR WHETHER THE PARTIES FROM WHOM SUCH PARTIES WERE MADE BOGUS AS ESSENTIAL QUESTION OF FACT AND WHEN IT IS EVIDENCE OF RECORD THAT ASSESSEE HAD PRODUCED THE CLOTH AND SELL THE FINISHED GOODS, THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE WOULD NOT BE SUBJECTED TO TAX. 6. IN THIS CASE THE CIT(A) HAS CATEGORICALLY HEARD THAT QUANTITY DETAILS WERE MAINTAINED AND ASSESSING OFFICER HAS NO DOUBT ABOUT THE GENUINENESS O F THE SALE. THEREFORE THIS FINDING OF FACT THAT THE ASSESSEE HAS MADE PURCHASE BUT ASSESSEE HAD MADE THE PURCHASE FROM THE OTHER PARTIES. THEREFORE WE ARE OF THE VIEW THAT WHEN THE ASSESSEE SUBMITTED THE LEDGER ACCOUNT OF THE PARTIES, COPIES OF THE BILLS, TRANSPORT BILLS, LOADING AND UNLOADING BILLS ALONG WITH THE BANK STATEMENT IN WHICH THE ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 7 PAYMENT IS MADE TO SUCH PARTY. THEREFORE ASSESSEE DID PURCHASE FROM DIFFERENT SOURCES. THEREFORE CONSIDERING THE SAME WE ARE OF THE VIEW THAT THE CIT(A) HAS JUSTIFIED. WE ALSO FIND FROM THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF CIT V. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ) WHEREIN THE SIMILAR ISSUE HAD COME UP BEFORE THE HONBLE HIGH COURT AND WHEREIN THE TRIBUNAL HAS HELD THAT THE ALLEGED SUPPLIERS OF S TEEL TO THE ASSESSEE ASSESSEE HAVE NOT SUPPLIED THE GOODS BUT ONLY PROVIDED SALE BILLS AND HENCE THE PURCHASES FROM THE SAID PARTIES IS HELD TO BE BOGUS. THE CIT(A) HAS HELD THAT ASSESSEE INDEED HAS PURCHASED NOT FROM THE MENTIONED PARTIED FROM OTHER PARTI ES FROM GRAY MARKET AND SUSTAIN ADDITION AS PROFIT OF THE ASSESSEE, SIMILAR IN THIS CASE THE FACTS ARE NEARER TO THE FACTS OF THIS CASE. ASSESSING OFFICER HIMSELF HAS STATED THAT ASSESSEE MIGHT HAVE PURCHASED FROM THE UNKNOWN SOURCES WHICH HAS KNOWN TO THE ASSESSEE. THEREFORE WE ARE OF THE VIEW THAT THE CIT(A) HAS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. IN THE RESULT THE ASSESSEE APPEAL IS DISMISSED . 5. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESP ECTFULLY FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE, WE CONFIRM THE ORDER PASSED BY CIT(A) UPHOLDING THE ADDITION TO THE EXTENT OF 7.5%. 6. IN THE RESULT, APPEAL OF THE ASSESSEE AND REVENUE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 20 / 11 /2017 SD/ - ( RAM LAL NEGI ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 20 / 11 /201 7 KARUNA SR. PS ITA NO. 178/MUM/2016 & 58/MUM/2016 SHRI HEMANT R. SANGHAVI 8 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//