MADHUKANT B. GANDHI, MUMBAI V. ITO 25(1)(3), MUMBAI

ITA 1950/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7600 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 30-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS; L K AGRAWAL S S RANA
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Bogus purchase

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI R.S.PADVEKAR, JM ITA NO.1950/MUM/2009 : ASST.YEAR 2005-2006 SHRI MADHUKANT B.GANDHI A/202, KUBER APARTMENTS BORSAPADA ROAD, NEAR KVSC MAHAVIR NAGAR, KANDIVALI (WEST) MUMBAI 400 067. PA NO.AABPG6188Q VS. THE INCOME TAX OFFICER WARD 25(1)(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : DR.K.SHIVRAM RESPONDENT BY : S/SHRI L.K.AGRAWAL, S.S.RANA & PITA MBAR DAS O R D E R PER : R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 14.1.2009 I N RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE FIRST REVISED GROUND IS AGAINST THE CONFIRMA TION OF ADDITION OF RS.42,99,845 MADE BY THE ASSESSING OFFICER ON ACCOU NT OF BOGUS PURCHASES. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT TH E ASSESSEE WAS ENGAGED IN THE BUSINESS OF RESALE OF DYECHEM. ON TOTAL TURNOVER OF RS.66,45,144, GROSS PROFIT WAS DECLARED AT RS.7,73,444 AT THE RATE OF 11.64% AND N ET PROFIT AT RS.1,41,759 AT THE RATE OF 2.13%. DURING THE COURSE OF ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER ISSUED NOTICE U/S.133(6) TO CERTAIN PARTIES WITH WH OM THE ASSESSEE HAD ENTERED INTO TRADING TRANSACTIONS. ONE OF SUCH NOTICE WAS ISSUED TO M/S.HARSHIT ENTERPRISES FROM WHOM THE ASSESSEE HAD SHOWN TO HAVE MADE PURCHASES AMOUNTING TO RS.10,15,000. SHRI YOGENDRA B.SHAH, PROPRIETOR OF M/S.HARSHIT ENTERPRISES REPLIED TO AO VIDE HIS LETTER THAT HE HAD NOT ENTE RED INTO ANY BUSINESS TRANSACTIONS ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 2 WITH THE ASSESSEE AND AS SUCH THERE WAS NO LEDGER A CCOUNT OR THE QUESTION OF ANY RECEIPTS, PAYMENTS ETC. EITHER IN CASH OR BY CHEQUE . HE FURTHER DENIED TO HAVE RAISED ANY BILL ON THE ASSESSEE. THE ASSESSEE DESIR ED TO CROSS-EXAMINE THE PROPRIETOR OF M/S.HARSHIT ENTERPRISES, WHICH WAS AL LOWED BY THE A.O. IN THE SAID CROSS-EXAMINATION AGAIN SHRI YOGENDRA B.SHAH DENIED TO HAVE ISSUED BILLS TO THE ASSESSEE AND CATEGORICALLY STATED THAT THESE WERE B OGUS BILLS AND HE HAD NOT SOLD ANY GOODS TO THE ASSESSEE. HE FURTHER STATED THAT T HE HE COULD NOT HAVE ANY BUSINESS TRANSACTIONS AS PER THESE BILLS BECAUSE H E WAS NOT DOING ANY BUSINESS OF SUCH CHEMICALS. HE ALLEGED THAT HIS BUSINESS NAME W AS FRAUDENTLY USED. REGARDING THE ASSESSEES CONTENTION OF MAKING PAYMENT THROUGH CHEQUE HE SUBMITTED THAT NO SUCH CHEQUE WAS EVER RECEIVED BY HIM. IT WAS ALSO S TATED THAT HE HAD ALREADY FILED POLICE COMPLAINT ON 16 TH MARCH, 2007 AGAINST THE ASSESSEE FOR FORGING HIS N AME. THE ASSESSEE HAD ALSO SHOWN PURCHASES FROM M/S.MEGH A IMPEX AND M/S.JYOTI ENTERPRISES AMOUNTING TO RS.18,12,500 AND RS.14,72, 345 RESPECTIVELY. THE A.O. ISSUED NOTICES U/S.133(6) TO THESE TWO PARTIES, AL SO WHICH WERE RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARKS NOT KNOWN. TH E ASSESSEE WAS REQUESTED TO GIVE CORRECT ADDRESS OR PRODUCE THE PARTIES. THE AS SESSEE FAILED TO PRODUCE THESE PARTIES OR FURNISH CORRECT ADDRESS. THE A.O. RECORD ED STATEMENT OF THE ASSESSEE IN WHICH HE AGREED TO PRODUCE THE PARTIES WITH RELEVAN T DOCUMENTS IN ABOUT 10 DAYS TIME. THE STATEMENT WAS TEMPORARILY CONCLUDED. AGAI N WHEN THE STATEMENT WAS CONTINUED ON 13.3.2007 THE ASSESSEE FAILED TO GIVE THE DESIRED INFORMATION BUT INSISTED OF HAVING MADE THE PURCHASES THROUGH BROKE R. THE A.O. CALLED UPON THE ASSESSEE TO PRODUCE THE SAID BROKER THROUGH WHOM SU CH TRANSACTION WAS ENTERED INTO. THOUGH THE ASSESSEE GAVE THE NAME OF THE BROK ER AND HIS MOBILE NUMBER, BUT EXPRESSED HIS INABILITY TO GIVE HIS ADDRESS OR PROD UCE THE BROKER. ON THE BASIS OF MOBILE NUMBER GIVEN, THE A.O. ISSUED SUMMONS U/S. 131 TO THE BROKER SHRI MANISH GAGLANI WHICH WAS DULY SERVED THROUGH THE WA RD INSPECTOR. THE BROKER DID NOT RESPOND. THE A.O. DEPUTED THE INSPECTOR TO VERIFY THE BUSINESS ACTIVITIES OF ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 3 THE OTHER TWO PARTIES I.E. M/S.JYOTI ENTERPRISES AN D M/S.MEGHA IMPEX. THE INSPECTOR REPORTED THAT M/S.JYOTI ENTERPRISES WAS N OT TRACEABLE AND ADDRESS GIVEN OF M/S.MEGHA IMPEX WAS BOGUS. THE ASSESSING OFFICER PROCEEDED FURTHER TO EXAMINE THE BANK ACCOUNT OF THE ASSESSEE THROUGH WH ICH THE ASSESSEE CLAIMED TO HAVE MADE THE PAYMENTS. IT CAME TO NOTICE THAT THE ACCOUNT OF ALL THE THREE PARTIES WERE OPENED IN THE SAME BANK ACCOUNT AND THE PROCEE DS WERE CREDITED THERE. ABOUT M/S.HARSHIT ENTERPRISES IT WAS INFORMED BY TH E BANK THAT THE SAID PARTY WAS INTRODUCED BY M/S.MEGHA IMPEX. SIMILAR PARTICULARS WERE GIVEN FOR THE OTHER TWO PARTIES ALSO. CONSIDERING THESE FACTS IN TOTALITY, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD NOT MADE ANY PURCHASES FROM THESE THRE E PARTIES AND THESE PURCHASES TRANSACTIONS WERE BOGUS. HE, THEREFORE, MADE ADDITI ON OF RS.42,99,845 U/S.69C AS UNPROVED PURCHASES. NO RELIEF WAS ALLOWED IN THE FI RST APPEAL. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND FROM THE TRADING AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED 31 ST MARCH, 2005 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, COPY PLACED AT PAGE 18 OF THE PAPER BOOK, THAT THE OPENING STOCK AND CLOSING STOCK WAS SHOWN AT RS.3.55 LAKHS AND RS.12.37 LAKHS RE SPECTIVELY. PURCHASES WORTH RS.67.53 LAKHS WERE MADE AGAINST WHICH THE SALES O F RS.66.45 LAKHS WERE REFLECTED. PAGE 52 ONWARDS IS A QUANTITATIVE TALLY OF THE OPENING STOCK, PURCHASE, SALE AND CLOSING STOCK. WHEN WE CONSIDER THE QUANTU M OF THE PURCHASES HELD BY THE AO TO BE BOGUS VIS--VIS THE TOTAL QUANTITY OF SAL ES AND CLOSING STOCK, IT BECOMES CLEAR THAT SOME GOODS WERE IN FACT PURCHASED BY THE ASSESSEE WHICH WERE SUBSEQUENTLY SOLD, AS BUT FOR THE INCLUSION OF SUCH QUANTITY PURCHASED THE SALE OF THE QUANTITY DECLARED IS NOT POSSIBLE. AT THE SA ME TIME THE ASSESSING OFFICER ALSO BROUGHT THE INQUIRY TO THE LOGICAL CONCLUSION THAT THE PURCHASES FROM THESE THREE PARTIES WERE BOGUS. IT IS SIMPLE AND PLAIN THAT UN LESS SOME PURCHASES ARE MADE THERE CANNOT BE CORRESPONDING SALE. THE ONLY POSSIB ILITY WHICH EXISTS IN SUCH A ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 4 SITUATION IS THAT ASSESSEE MADE THE ENTRIES FOR BO GUS PURCHASES AT INFLATED RATES WHILE KEEPING THE ACTUAL PURCHASES AT LOWER RATES OUTSIDE THE BOOKS OF ACCOUNT. IN SUCH A SCENARIO IF WE APPROVE THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE PURCHASES FROM THESE THREE PARTIES TOTALING TO RS.4 2.99 LAKHS WERE BOGUS, THEN THE CORRESPONDING SALE WOULD ALSO HAVE TO BE DECLARED AS BOGUS, WHICH IS NOT THE CASE OF THE REVENUE IN AS MUCH AS THE FIGURE OF SALES H AS BEEN ACCEPTED BY THE AO. AT THE SAME TIME THE FIGURES OF PURCHASES FROM THESE PARTIES CAN NOT BE EQUALLY ACCEPTED. 4. IT IS SEEN THAT THE ASSESSEE HAD SHOW N NET PROFIT RATE AT 2.13%. FROM THE IMPUGNED ORDER IT IS SEEN THAT THE RATE OF NET PROF IT FROM ASSESSMENT YEAR 2001- 2002 TO ASSESSMENT YEAR 2005-2006 RANGED BETWEEN 2. 13 TO 3.40%. IN VIEW OF THE FACT THAT IT HAS BEEN AMPLY ESTABLISHED THAT THE PU RCHASES RECORDED IN THE BOOKS OF ACCOUNT FROM THESE THREE PARTIES WERE BOGUS WITH A VIEW TO SUPPRESS THE PROFIT, NOW NEED TO ZERO IN ON THE CORRECT RATE OF NET PROF IT WHICH COULD BE APPLIED UNDER THESE CIRCUMSTANCES. SECTION 44AF, THOUGH NOT STRIC TLY APPLICABLE IN THIS CASE, PROVIDES FOR 5% NET PROFIT RATE ON THE TOTAL TURNOV ER. IN OUR CONSIDERED OPINION, IT WILL BE JUST AND FAIR IF THE NET PROFIT RATE OF 5% IS APPLIED ON THE GOODS SOLD WHICH WERE ALLEGEDLY PURCHASED THROUGH THESE PARTIES. ON THE CONCLUSION OF THE HEARING IN THIS CASE, A PROPOSAL TO THIS EFFECT WAS MADE F ROM THE BENCH. BOTH THE SIDES FINALLY AGREED TO IT. WE HOLD THAT THE NET PROFIT RATE OF 5% BE APPLIED. ON THE APPLICATION OF SUCH NET PROFIT RATE, THE EFFECTIVE ADDITION WILL BE RS.1,18,826 AS FOLLOWS:- PURCHASE FROM THESE THREE PARTIES RS.42,99,845 CONVERSION OF PURCHASE PRICE INTO SALE PRICE WITH PROFIT RATE OF 5%. (42,99,845 / 100 X 105) R S.45,14,837 NET PROFIT (45,14,837 42,99,845) RS. 2,14,99 2 ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 5 LESS : NET PROFIT DECLARED BY THE ASSESSEE (45,14,837 X 2.13 / 100) RS. 96,166 [SINCE THE NET PROFIT RATE DECLARED BY THE ASSESSEE IS 2.13%] FURTHER ADDITION (2,14,992 96,166) RS. 1,18,82 6 5. WE, THEREFORE, UPHOLD THE ADDITION AT RS .1,18,826 ALLOWING RELIEF OF RS.41,81,019. THIS GROUND IS PARTLY ALLOWED. 6. GROUND NO.2 IS AGAINST THE ADDITION U/S.68 FOR A SUM OF RS.3,28,000. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE DEPOSITE D CASH OF RS.18,70,000 IN HIS BANK ACCOUNT. HE WAS CALLED UPON TO EXPLAIN THE SOURCE O F DEPOSIT. IT WAS REPLIED THAT CASH SALES WAS MADE AT RS.15.42 LAKHS WHICH AMOUNT WAS DEPOSITED IN THE BANK. REGARDING THE REMAINING AMOUNT OF RS.3.28 LAKHS, T HE ASSESSEE EXPLAINED THAT THE SAME WAS THE EARLIER WITHDRAWALS FROM THE BANK ITSE LF WHICH WAS RE-DEPOSITED. NOT CONVINCED THE A.O. MADE ADDITION OF RS.3,28,000 ( RS. 18.70 LACS RS.15.42 LACS) U/S.68, WHICH CAME TO BE UPHELD IN THE FIRST APPEA L. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE SAID CASH OF RS.18,70,000 W AS DEPOSITED BY THE ASSESSEE IN HIS BANK ACCOUNT. THE ASSESSING OFFICER CAME TO KNO W OF SUCH DEPOSIT FROM THE ENTRIES MADE AS RECORDED IN THE REGULAR BOOKS OF AC COUNT. WHEN CASH IS DEPOSITED IN THE BANK THROUGH THE BOOKS OF ACCOUNT, THE SOURC E OF THE SAID DEPOSIT CAN NEVER BE DOUBTED. SUCH SOURCE CAN BE EXAMINED WHERE NO BO OKS OF ACCOUNT WERE MAINTAINED. IT IS AXIOMATIC THAT THE SOURCE OF DEPO SIT IN THE BANK IS ALWAYS OUT OF CASH BALANCE AVAILABLE AT THE BEGINNING OF THE DAY AS ADJUSTED WITH THE RECEIPTS AND PAYMENTS FOR THE DAY. THERE CANNOT BE ANY QUESTION OF MAKING ADDITION U/S.68 IN ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 6 RESPECT OF ENTRIES OF DEPOSIT IN THE BANK THROUGH T HE REGULAR BOOKS OF ACCOUNT. WE, THEREFORE, ORDER FOR THE DELETION OF THE ADDITION. THIS GROUND IS ALLOWED. 8. THE LAST GROUND IS AGAINST THE CONFIRMATION OF A DDITION OF RS.1,79,000 ON ACCOUNT OF LOW WITHDRAWALS. FACTS OF THIS GROUND AR E THAT THE A.O. DEPUTED THE WARD INSPECTOR FOR INQUIRY OF HOUSEHOLD EXPENSES. V IDE HIS REPORT, THE INSPECTOR OBSERVED THAT THE ASSESSEES FAMILY CONSISTED OF FO UR MEMBERS AND THE TOTAL HOUSEHOLD EXPENSES WERE RS.15,000 PER MONTH ALONG W ITH EDUCATION EXPENSES OF BOTH THE CHILDREN AT RS.53,000 PER ANNUM. CONSIDER ING THIS REPORT, THE ASSESSING OFFICER DETERMINED THE TOTAL HOUSEHOLD EXPENSES AT RS.2,33,000 [RS.1,80,000 (RS.15000 X 12) + RS.53,000]. SINCE THE ASSESSEE HA D SHOWN WITHDRAWALS AT RS.54,000, THE A.O. MADE ADDITION OF RS.1,79,000. N O RELIEF WAS ALLOWED IN THE FIRST APPEAL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN FROM THE ASSESSEES CONTENTION M ADE BEFORE THE LEARNED CIT(A), AS REPRODUCED AT PAGE 16 OF THE IMPUGNED ORDER WHIC H HAS REMAINED UNCONTROVERTED ON BEHALF OF THE REVENUE, THAT APART FROM RS.54,000 THE ASSESSEE HAD ALSO SHOWN WITHDRAWALS AT RS.12,402 AND RS.93,0 00 GIVING A TOTAL SUM OF RS.1,59,402. SINCE THE ASSESSING OFFICER HIMSELF HA D ESTIMATED THE TOTAL EXPENSES AT RS.2.33 LAKHS AND IF THE ABOVE SAID THREE AMOUNT S OF WITHDRAWALS ARE REDUCED, THE REMAINING AMOUNT COMES TO AROUND RS.73,000. SIN CE IT IS A QUESTION OF MAKING ESTIMATE OF HOUSE HOLD EXPENSES AND TAKING INTO CO NSIDERATION THAT THE ASSESSEE WAS CARRYING ON BUSINESS FROM HIS RESIDENCE AND HAD CLAIMED TELEPHONE AND ELECTRICITY CHARGES AT RS.19,364 AS BUSINESS DEDUCT IONS, IN OUR CONSIDERED OPINION, IT WILL BE JUST AND FAIR IF THE AD HOC ADDITION OF RS.50,000 IS SUSTAINED ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWAL. WE ORDER ACCORDINGLY. ITA NO.1950/MUM/2009 SHRI MADHUKANT B.GANDHI. 7 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF FEBRUARY, 2010. SD/- SD/- ( R.S.PADVEKAR ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI : 23 RD FEBRUARY, 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XXVI, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.