DCIT CERCLE-1, KALYAN, KALYAN V. BHAVE ENGINEERING PVT. LTD, MUMBAI

ITA 1913/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4909 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Opportunity of being heard; Accommodation entries; Set aside
• Section: 142(1); 143(1); 143(2); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI M. BALAGANESH , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 1913 /MUM/201 9 ( / ASSESSMENT YEAR: 20 10 - 1 1 ) DCIT, CIRCLE - 1 1 ST FLOOR, MOHAN PLAZA WAY LE NAGAR, KHADAKPADA, KALYAN - WEST - 421301 . / VS. BHAVE ENGINEERING PVT. LTD. C/O. D. C. BOTHRA & CO. LLP (CA) (FORMERLY KNOWN AS D. C 297, TARDEO ROAD, WILLE MANSION, 1 ST FLOOR, OPP BANK OF INDIA, NANA CHOWK, MUMBAI . & / I . T.A. NO. 1818 /MUM/201 9 ( / ASSESSMENT YEAR: 20 10 - 11 ) BHAVE ENGINEERING PVT. LTD. C/O. D. C. BOTHRA & CO. LLP (CA) (FORMERLY KNOWN AS D. C 297, TARDEO ROAD, WILLE MANSION, 1 ST FLOOR, OPP BANK OF INDIA, NANA CHOWK, MUMBAI . / VS. ACIT, CIRCLE - 1 1 ST FLOOR, MOHAN PLAZA WAYLE NAGAR , KHADAKPADA, KALYAN - WEST - 421301 ./ ./ PAN/GIR NO. : AAACB7065K ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 07 / 12 / 20 20 / DATE OF PRONOUNCEMENT : 01 / 0 3 / 202 1 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE AS WELL AS ASSESSEE HAS FILED THE ABOVE MENTIONED APPEAL S AGAINST THE ORDER DATED 16 . 0 1 .201 9 PASSED BY THE COMMISSIONER OF ASSESSEE BY : SHRI RAJKUMAR SINGH REVENUE BY: SHRI RAJENDR A JOSHI (DR) ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 2 INCOME TAX (APPEALS) - 02 , THANE [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 10 - 11 . ITA. NOS. 1913/MUM/2019 & 1818/MUM/2019 2 . THE REVENUE HAS R AISED THE FOLLOWING GROUNDS.: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE PURCHASES FROM THE NONEXISTENT VENDORS AS P ER INFORMATION RECEIVED FROM LAW ENFORCEMENT AGENCY OF STATE GOVT. OF MAHARASHTRA I.E. SALES TAX DEPARTMENT, AND ESTABLISHED BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECI ATING THE FACT THAT THE ONUS TO JUSTIFY THE CLAIM OF EXPENSES IS ON THE ASSESSEE AND THE SAME HAS FAILED TO DISCHARGE IT IN RELATION TO THE PURCHASES MADE FROM THE NON - EXISTENT VENDORS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN IGNORING, THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF PURCHASES FROM NON - EXISTENT VENDORS BY MEANS OF RELEVANT SUPPORTING DOCUMENTS RELATED TO MOVEMENT OF GOODS, STOCK REGISTER, ETC. TO RESTRICT THE ADDITION TO 12 .5% OF BOGUS PURCHASES FROM THE NON - EXISTENT VENDORS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE LAW CORRECTLY THAT ONCE THE PURCHASES ARE UNVERIFIABLE/NOT GENUINE/BOGUS, THE SAME SHOU LD HAVE BEEN DISALLOWED IN ENTIRETY, PARTICULARLY IN VIEW OF THE ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 3 RATIO OF THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN TAX APPEAL NO. 242 OF 2003 DATED 20/06/2016 IN THE CASE OF N. K. PROTEINS LTD. AGAINST WHICH THE SLP WAS DISMISSED BY THE HON'BLE AP EX COURT. 5. IT IS HUMBLY REQUESTED THAT PRESENT APPEAL IS BEING FILED IN ACCORDANCE WITH THE CBDT'S INSTRUCTION NO. 3/2018 DATED 11.07.2018 AMENDED VIDE LETTER DTD. 20.08.2018 AS PER PARA 10(E) OF THE SAID CIRCULAR. THEREFORE, THE ORDER OF THE CIT(A) MAY KINDLY BE VACATED AND THAT OF THE AO MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY GROUND OF APPEAL. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN RETAINING THE DISALLOWANCE OF RS.1,38,99,219/ - BEING 12.50 PERCENTAGE OF ALLEGED HAWALA PURCHASE OF RS.11,11,93,789/ - . APPELLANT HUMBLY PRAYS THAT ADHOC DISALLOWANCE RETAINED BY LD. CIT(A) WRONG ON FACTS AND BAD IN LAW THEREFORE, MAY BE DELETED. 2. THAT APPELLANT CRAVES THE LEAVE TO AMEND, ALTER, SUBSTITUTE AND OR TO RAISE NEW OR ADDITIONAL GROUNDS OF APPEAL AT THE TIME OF HEARING. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 14 . 10 .20 1 0 DECL ARING TO TAL LOSS TO THE TUNE OF RS. 14,04,418/ - FOR THE A.Y. 2010 - 1 1 . T HE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961. THEREAFTER, THE CASE OF THE ASSESSEE WAS REOPENED AND NOTICE U/S 14 8 OF THE ACT DATED 09 . 12 .201 3 WAS ISSUED AND SERVED UPON THE ASSESSEE . NOTICES U/S 143(2) & 142(1) OF THE ACT DATED 16.07.2014 WERE ISSUED AND ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 4 SERVED UPON THE ASSESSEE. THE CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, MAHARASHTRA IN WHICH IT WAS CONVEYED THAT THE ASSESSEE HAS TAKEN THE BOGUS ACCOMMODATION ENTRIES O F PURCHASE IN SUM OF RS.11 , 11 , 93 , 749 / - FROM THE FOLLOWING SIX PARTIES. PARTY NAME TIN AMOUNT (RS.) REXON IMPEX/VEDANTA ENTERPRISES 27070729398V 29635804 GOODLUCK METAL DRASHTI OVERSEAS 27200639456V 38322963 SHREE GANESH STEEL 27280401083V 10266921 ACE INTERNATIONAL 27470504332V 11476774 DEEP ENTERPRISES 27710298366V 10778664 TOTAL 27750595164V 111193749 5 . AFTER THE REPLY OF THE ASSESSEE, THE AO RAISED THE ADDITION TO THE EXTENT OF 100 % OF THE BOGUS PURCHASE . THE CIT(A) HAS RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE. FEELING AGGRIEVED, T HE ASSESSEE AS WELL AS REVENUE HAS FILED THE ABOVE MENTIONED APPEAL S BEFORE US. 6 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPR ESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE FAILED TO SUBSTANTIATE HIS CLAIM, THEREFORE, THE AO RAISED THE ADDITION TO THE EXTENT OF 100% OF THE BOGUS PURCHASE. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE C IT(A) WHO RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE. BOTH THE PARTIES ARE IN APPEAL BEFORE US. IN THE INSTANT CASE, SALE IS NOT DOUBTED. IT IS SETTLED LAW THAT WHEN THE SALE IS NOT ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 5 DOUBTED THEN THE 100% DISALLOWANCE FOR THE BOGUS PURCHASE CANNOT BE DONE. T HIS PROPOSITION WAS SUPPORTED FROM THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO.2860 DATED 18.06.2014). THE FACTS OF THE PRESENT CASE INDICATE THAT THE ASSESSEE HA S 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 EXPENSES OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING O F SUCH BOGUS/UNSUBSTANT IATED PURCHASES BY THE ASSESSEE, W E FIND THAT THE PROP OSITION AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PCIT VS. M. HAJI ADAM & CO. (ITA. NO. 1004 OF 2016 DATED 11.02.2019) IS LIABLE TO BE APPLIED. THE RELEVANT PARA NO. 8 IS HEREBY REPRODUCED AS UNDER: - 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM TH ESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESS EE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COINING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 6 TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LI MITED TO THE EXTENT OF BRINGING THE G.I. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. (SUPRA CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER SO FAR THE QUESTION REGARDING ADDITION OF RS.3,70,78,125/ - AS GROSS PROFIT ON SALE OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECO RDED IN THE REGULAR BOOKS DURING F.Y. I997 - 98 IS CONCERNED; WE ARE OF THE VIEW THAT THE ASSESSEE BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS RESULT OF WHICH PROFIT COMES TO 5.66%. THEREFORE, CONSIDERING 5.66% OF RS.3,70,78,125% WHICH COMES TO RS.20,98,621.88 WE THINK IF FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MADE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. 7 . WE RESPECTFULLY FOLLOWING THE AFORESAID JU DGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT SET ASIDE THE FINDING OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS PURCHASES BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PUR CHASES AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASES. NEEDLESS ITA NO S . 1913 / M/201 9 1818/M/2019 A.Y.20 1 0 - 11 7 TO SAY THAT AN OPPORTUNITY OF BEING HEARD IS REQUIRED TO BE GIVEN TO THE ASSESSEE IN ACCORDANCE WITH LAW. 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED AND APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED ACCORDINGLY . ORDER PRONOUNCED IN THE OPEN COURT ON 0 1 /0 3 /202 1 SD/ - SD/ - ( M. BALAGANESH ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 0 1 /0 3 /202 1 V IJAY PAL SINGH ( SR. P.S. ) / 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. / BY ORDER, //TRUE CO PY// ( ASSISTANT REGISTRAR ) , / ITAT, MUMBAI