SWATANTRAKUMAR G. KAPOOR, MUMBAI V. ITO 26(3)(3), MUMBAI

ITA 2010/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8965 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: NAVIN MISHRA
• Keywords: Bogus purchase; Accommodation entries
• Section: 69C; 147; 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MU MBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 2010/MUM/2017 (ASSESSMENT YEAR-2009-10) M/S SWATANTRAKUMAR G. KAPOOR GALA N. 202, 2 ND FLOOR, OPP. IIT MAIN GATE, POWAI, MUMBAI- 400076. PAN: AAEPK0784B VS. ITO 26(3)(3), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAVIN MISHRA (AR REVENUE BY : SHRI V. JUSTIN (DR) DATE OF HEARING : 27.10.2017 DATE OF PRONOUNCEMENT : 27.10.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF THE IN COME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSI ONER OF INCOME -TAX [CIT(A)] -38, MUMBAI DATED 30.12.2016 FOR ASSESSMEN T YEAR (AY) 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 12,85,109/- BEING 25% OF THE PURCHASES MADE FROM ALLEGED MVAT PARTY L ISTED ON MVAT SITE AS HAWALA TRADER AS UNEXPLAINED EXPENSES U/S 69C OF THE INCOME-TAX ACT, 1961 AND REASON ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE PROVISION OF INCOME-TAX ACT, 1969 AND RULES MADE TH ERE UNDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN MANUFACTURING OF EQUIPMENT AND CONTROL DEVICES, FILED HIS RETURN OF INCOME FOR RELEVANT AY 2 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . ON 30.09.2009 DECLARING TOTAL INCOME OF RS. 5,04,00 0/-. THE RETURN WAS PROCESSED U/S 143(1) VIDE ORDER DATED 06.08.2010 AC CEPTING THE RETURN INCOME. THE ASSESSMENT WAS RE-OPENED U/S 147 OF THE ACT. THE NOTICE U/S 148 DATED 20.03.2014 WAS SERVED UPON THE ASSESSEE. REASONS OF RE- OPENING WERE ALSO SERVED UPON THE ASSESSEE. THE ASS ESSMENT WAS RE- OPENED ON THE BASIS OF INFORMATION RECEIVED FROM IN VESTIGATION WING OF THE INCOME-TAX DEPARTMENT THAT THE ASSESSEE HAS OBT AINED ACCOMMODATION BILL OF PURCHASES FROM HAWALA DEALERS DURING THE RELEVANT FY. THE AO RECEIVED INFORMATION THAT THE ASSESSEE H AS RECEIVED ACCOMMODATION BILL FROM THE FOLLOWING PARTIES: SL. NO. NAME OF PURCHASE PARTY AMOUNT (IN RS.) 1 SURACHI MULTITRADE PVT. LTD. 706004 2 SOMNATH INTERNATIONAL 217048 3 SHRADHHA TRADING CO. 219180 4 DHIREN MERCANTILE PVT. LTD. 688199 5 ANSHU MERCANTILE PVT. LTD. 813977 6 A.P. ENTERPRISES 538802 7 SACHI MERCANTILE PVT. LTD. 728239 8 VIDHI AND VRUSHTI TRADE PVT. LTD. 652366 9 KAVISH INTERNATIONAL 576622 TOTAL RS.51,40,437 /- 3. DURING THE RE-ASSESSMENT PROCEEDING, THE ASSESSEE W AS ASKED FILE THE LIST OF PARTIES FROM WHOM THE ASSESSEE MADE PURCHASES DU RING THE YEAR. ASSESSEE FILED THE LIST OF PURCHASE MADE DURING THE YEAR. THE AO NOTICED THAT ALL THE PARTIES APPEAR IN THE LIST OF THE HAWA LA DEALERS. THE ASSESSEE WAS ASKED TO EXPLAIN THE GENUINENESS OF PURCHASES B Y PRODUCING THE PARTIES FOR VERIFICATION WITH THEIR BOOKS OF ACCOUN T. IN RESPONSE TO THE 3 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . SHOW-CAUSE NOTICE THE ASSESSEE FIELD HIS REPLY AND SUBMITTED THAT THE PURCHASES ARE GENUINE, THE ASSESSEE FILED COPY OF L EDGER ACCOUNT CONTAINING THE PARTICULARS OF PURCHASES, COPY OF PU RCHASE BILL AND BANK CERTIFICATE SHOWING THE PAYMENT. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY AO. THE AO ISSUED NOTICE TO THE PARTIES UNDER SECTION 133(6). HOWEVER, THE NOTICES WERE RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARK LEFT/ NOT KNOWN. THE AO CONCLUDED THAT THE ASSESSEE FAILED TO PRODUCE THE PARTIES AS REQUIRED BY HIM. T HE MATERIAL OF PURCHASES IN QUESTION AS SHOWN IN PURCHASES IS THRO UGH FICTITIOUS INVOICES IN THE NAME OF SAID PARTIES. THOUGH, AO ALSO CONCLU DED THE RECEIPT OF MATERIAL IN QUESTION WAS NOT IN DOUBT BUT THE MATER IAL HAS BEEN RECEIVED FROM SOURCES BEST KNOWN TO THE ASSESSEE ONLY. THE A O ALSO CONCLUDED THAT IT IS WELL-SETTLED LEGAL POSITION THAT TAX CAN BE LEVIED ONLY ON REAL INCOME. THE RULE OF ACCOUNTANCY AS WELL AS UNDER TA XATION LAW THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTI NG COST OF PURCHASE FROM SALES. THE ASSESSEE HAS INFLATED THE EXPENDITU RE BY SHOWING HIGHER AMOUNT OF PURCHASE. THE AO ALSO CONCLUDED THAT IT I S WELL-KNOWN THAT IF PURCHASES ARE MADE FROM OPEN MARKET WITHOUT INSISTI NG FOR GENUINE BILL, THE SUPPLIER MAY BE WILLING TO SELL THOSE PRODUCTS AT MUCH LOWER RATE COMPARE TO GENUINE SALE INVOICES. THE AO ON HIS OBS ERVATION DISALLOWED THE 25% OF THE TOTAL PURCHASES (25% OF RS. 51,40,43 7/-). THE AO WORKED OUT THE DISALLOWANCE OF RS. 12,85,109/- ON ACCOUNT OF BOGUS PURCHASES. 4 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . 4. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS C HALLENGED THE ORDER OF RE-OPENING OF THE ASSESSMENT AS WELL AS ADDITION ON ACCOUNT OF BOGUS PURCHASES. THE LD. CIT(A) UPHELD BOTH THE ACTION OF AO. FURTHER, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) FOR THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE RE VENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE ARGUED THAT THE PURCHASES OF THE ASSESSEE ARE GENUINE. THE AO H AS NOT CONSIDERED THE FACT AND THE DETAILS SUBMITTED BY THE ASSESSEE DURI NG THE ASSESSMENT PROCEEDING. THE ALLEGED BOGUS PURCHASES IDENTIFIED BY THE AO WERE 92% OF THE TOTAL PURCHASES OF ASSESSEE. THE ASSESSEE HA S DECLARED 27% OF GROSS PROFIT DURING THE YEAR UNDER CONSIDERATION. I F ADDITION OF 25% IS SUSTAINED THE EFFECTIVE GROSS PROFIT WOULD BE 44%. THE AO HAS NOT MADE ANY INDEPENDENT ENQUIRY NOR WAS ANY SUMMONS ISSUED TO THE ALLEGED BOGUS SUPPLIER. THE AO RELIED ON THE THIRD PARTY IN FORMATION. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT NOR DISPUTED THE CONSUMPTION OF THE MATERIAL. THE AO RIGHTLY CONCLUDED THAT UNDER INCOM E-TAX ACT ONLY REAL INCOME CAN BE TAXED. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. IT WAS AR GUED THAT SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA AS WELL AS INVESTIGATION WING OF INCOME-TAX DEPARTMENT HAS MADE FULL-FLEDGED ENQU IRY ABOUT THE 5 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . HAWALA DEALERS. THE HAWALA DEALERS ARE ENGAGED IN P ROVIDING ACCOMMODATION ENTRIES WITHOUT DELIVERY OF GOODS. DU RING THE ASSESSMENT PROCEEDING, THE ASSESSEE FAILED TO PROVE THE GENUIN ENESS OF PURCHASES AND TO BRING THE PARTIES BEFORE THE AO FOR VERIFICATION OF PURCHASES. THE LOWER AUTHORITY PASSED THE ORDER AFTER CONSIDERING THE FA CT OF THE CASE, WHICH DOES NOT REQUIRE ANY INTERFERENCE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO RE- OPENED THE ASSESSMENT UNDER SECTION 147 VIDE NOTICE DATED 20.0 3.2014. THE ASSESSMENT WAS RE-OPENED ON THE BASIS OF INFORMATIO N RECEIVED FROM THE INVESTIGATION WING AND SALE TAX DEPARTMENT, GOVERNM ENT OF MAHARASHTRA. THE ASSESSEE HAS NOT CHALLENGED THE VA LIDITY OF RE-OPENING BEFORE US. DURING THE ASSESSMENT PROCEEDING, THE AO ASKED THE ASSESSEE TO SUBSTANTIATE THE PURCHASES FROM ALL NINE PARTIES ALONG WITH THE DOCUMENTARY EVIDENCE. THE ASSESSEE FIELD ITS REPLY AND CONTENDED THAT THE PURCHASES ARE GENUINE, ALONG WITH THE REPLY THE ASS ESSEE FURNISHED THE COPY OF PURCHASES DETAILS, LEDGER ACCOUNT, PURCHASE BILLS ALONG WITH STATEMENT OF PAYMENT MADE THROUGH BANKING CHANNEL. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY AO HOLDING THAT TH E ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE PURCHASES AND THAT MER E PAYMENT THROUGH CHEQUES DOES NOT ESTABLISH THAT PURCHASES MADE ARE GENUINE. THE AO TREATED THE ENTIRE PURCHASES AS BOGUS AND MADE THE ADDITION OF 25% OF THE 6 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . ALLEGED BOGUS PURCHASES OF RS. 51,40,437/-. THE LD. CIT(A) UPHELD THE ACTION OF AO THAT AO HAS ADDED ONLY PROFIT ELEMENT EMBEDDED IN THE BOGUS PURCHASES. 7. WE HAVE NOTED THAT THE AO HAS NOT MADE ANY INDEPEND ENT ENQUIRY. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASS ESSEE. THE AO DISALLOWED THE 25% OF THE ALLEGED BOGUS PURCHASES. THE AO HAS NOT ISSUED ANY SUMMON UNDER SECTION 131 OF THE ACT. THE AO HAS NOT CONSIDERED THE GROSS PROFIT AND NET PROFIT FOR EARL IER AND SUBSEQUENT AYS. THE LD. CIT(A) WHILE CONFIRMING THE ORDER CONC LUDED THAT THE AO HAS ONLY ADDED THE PROFIT ELEMENT EMBEDDED IN THE B OGUS PURCHASES. WE HAVE NOTED THAT THE ASSESSEE HAS CLAIMED GROSS PROF IT OF 27% DURING THE YEAR UNDER CONSIDERATION. THE LD. AR OF THE ASSESSE E ARGUED THAT THE BOGUS PURCHASES IDENTIFIED BY THE AO ARE 92% OF THE TOTAL PURCHASES. THE AO DISALLOWED THE 25% OF COST OF ALLEGED BOGUS PURC HASES BY ADDING 25% OF DISALLOWANCE OF BOGUS PURCHASES WOULD AFFECT IVELY INCREASED THE GROSS PROFIT TO 44%. THIS FACT IS NOT COUNTERED BY LD DR FOR THE REVENUE. CONSIDERING THE SUBMISSIONS OF LD AR OF ASSESSEE TH E DISALLOWANCE OF 25% OF THE ALLEGED BOGUS PURCHASES IS ON THE HIGHER SIDE. WE ARE OF THE CONSIDERED VIEW THAT UNDER THE INCOME-TAX ACT, THE ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER CONCLUDE TH AT EVEN IF THE TRANSACTION IS NOT VERIFIABLE BECAUSE OF THE CERTAI N REASONS OR THE REASONS EXPLAINED BY ASSESSEE IS NOT ACCEPTABLE TO THE REVE NUE; THE ONLY TAXABLE 7 ITA NO.2010/M/17 M/S SWATANTRAKUMAR G. KAPOOR . IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION. IN ORDER TO FULFILL THE REVENUE LEAKAGE, THE REVENUE AUTHORI TY ON THE BASIS OF FACT OF THE PARTICULAR CASE MAY BROUGHT TO TAX ONLY THE PROFIT ATTRIBUTABLE ON SUCH PURCHASES. WE ARE ALSO OF THE OPINION THAT IN SUCH CASES IN ORDER TO FULFILL THE GAP OF REVENUE LEAKAGE, THE DISALLOWANC E OF REASONABLE PERCENTAGE OF THE IMPUGNED PURCHASES WOULD MEET THE END OF JUSTICE. CONSIDERING THE FACT OF THE PRESENT CASE, WHEN THE ASSESSEE HAS DECLARED GROSS PROFIT OF 27%, WE ARE OF THE VIEW THAT DISALL OWANCE OF 12.5% OF THE IMPUGNED/BOGUS PURCHASES OF RS.51,40,437/- WOULD ME ET THE END OF JUSTICE. SIMILAR VIEW WAS TAKEN BY HONBLE BOMBAY H IGH COURT IN CASE OF CIT VS. HARIRAM BHAMBHANI (92 CCH 006). IN VIEW OF THE ABOVE OBSERVATION, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF OCTOBER 2017. SD/- SD/- (R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 27/10/2017 S.K.PS 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/