M..V SHAH & CO, MUMBAI V. ITO 19(2)(3), MUMBAI

ITA 2077/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9365 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 31-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 24-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: KEYURI DESAI
• Keywords: Reopening of assessment; Bogus purchase; Business income; Accommodation entries
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 2077 / MUM/20 17 ( ASSESSMENT YEAR : 2007 - 08 ) SHRI M.V. SHAH &CO., 53B, SHREEJI ARCADE TATA ROAD NO.2, OPERA HOUSE, MUMBAI 400 004 VS. ITO 19(2)(3) R.NO.221, 2 ND FLOOR, MATRU MANDIR, GRANT ROAD MUMBAI 400 007 PAN/GIR NO. AAAFM1840N APPELLANT ) .. RESPONDENT ) ASSESSEE BY MS. KEYURI DESAI REVENUE BY SHRI RAM TIWARI DATE OF HEARING 25 / 09 /201 7 DATE OF PRONOUNCEME NT 27 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 30, MUMBAI DATED 20/01/2017 FOR A.Y.2007 - 08 IN THE MATTER OF ORDER PASSED U/S.144 R.W.S. 147 OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE IS AGGRIEVED FOR REOPENING OF ASSESSMENT AS WELL AS MERIT OF THE ADDITION UPHELD BY CIT(A) TO THE EXTENT OF 25% OF THE ALLEGED BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF 'TRADING OF DIAMONDS'. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILED ON 27 / 07 /2007 DECLARING TOTAL INCOME OF RS. 8,134/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, NOTICE U/S 148 OF THE ACT ITA NO. 2077/MUM/2017 M/S. M.V. SHAH & CO., 2 DATE D 25 / 03 / 2014 WAS ISSUED AND SERVED ON THE ASSESSEE AFTER RECORDING THE REASONS FOR REOPENING. THE REASONS FOR REOPENING OF THE ASSESSMENT IS BASED ON THE INFORMATION THAT SEARCH 81 SEIZURE OPERATIONS AS WELL AS SURVEY OPERATIONS WERE CONDUC TED ON 03/ 10 / 20 1 3 BY THE INVESTIGATION WING, M UMBAI, IN THE GROUP CONCERNS OF RAJENDRA JAIN/SANJAY CHOUDHARY/ DHARMICHAND JAIN AND DURING THE COURSE OF THE OPERATION, IT WAS FOUND THAT SEVERAL NAME LENDING DUMMY DIRECTORS, PARTNERS/ PROPRIETORS OF VARIOUS CONCERNS BELONGS TO THE NATIVE PLACE OF RAJENDRA JAIN/SANJAY CHOUDHARY/ DHARMICHAND JAIN & THEIR FAMILY WERE OPERATING THE CONCERNS, OF WHICH WERE LITERALLY CONTROLLED, OPERATED AND MANAGED BY THEM AND THEIR FAMILY AND THIS FACT WAS ADMITTED BY THOSE PERSONS IN THE SWORN STATEMENTS RECORDED DURING THE COURSE OF SEARCH OPERATION AND THEY HAVE ALSO ADMITTED THAT THEY WERE MADE TO THE POSITION BY RAJENDRA JAIN/SANJAY CHOUDHARY / DHARMICHAND JAIN AND WERE PROVIDING ACCOMMODATION ENTRIES WITHOUT SUPPLY OF ANY GOODS. POST SEARCH INVESTIGATION IS THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRIES OF PURCHASES FROM TWO OF THESE DUMMY CONCERN M/S. AVI EXPORTS ( RS. 8,26,362/ - ) & M/S VITRAG ( RS. 20,40 , 585/ - ), AMOUNTING TO RS. 28,66,947/ - . 4. DURING THE COURSE OF SCRUTINY PROCEEDINGS, A O OBSERVED THAT ASSESSEE HAS OBTAINED ACCOMMODATION BILL TO THE TUNE OF RS.28,66,947/ - FROM TWO PARTIES BY WAY OF NON - GENUINE PURCHASES. AFTER DISCUSSING MODUS OPERANDI OF THE PURCHASES FROM RAJENDRA JAIN GROUP CONCERNS, AO ADDED ENTIRE AMOUNT IN ASSESSEE S INCOME. ITA NO. 2077/MUM/2017 M/S. M.V. SHAH & CO., 3 5. BY THE IMPUGNED ORDER CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 20% AFTER OBSERVING AS UNDER: - 6.11 IN THIS CASE AS DISCUSSED EARLIER, A PECULIAR FEATURE IS NOT I CED THAT HUGE CLOSING STOCK AVAILABILITY AT THE YEAR END, AND IN THE CURREN T YEAR ENTIRE PURCHASES MADE DURING THE YEAR IS SHOWN IN THE CLOSING STOCK. IN SUCH A SCENARIO, I AM NOT IN AGREEMENT WITH THE SUGGESTION OF THE APPELLANT TO ADD 8% OF THE TOTAL SALES AS THE ADDITIONA L PROFIT PERCENTAGE AND TO ADD RS. 70,000/ - TO THE TOTAL INCOME. IN THE LIGHT OF THE PECULIAR CIRCUMSTANCES OF THE CASE THAT THE ENTIRE PURCHASES FROM THE BOGUS PURCHASE PARTIES ARE SHOWN AS THE CLOSING STOCK, YEAR AFTER YEAR, WITHOUT ANY SALES OUT OF SUCH PURCHASES, THE CORRECT TREATMENT IN THIS TYPE OF CASES I S TO APPLY HIGHER PERCENTAGE ON THE TOTAL PURCHASES MADE DURING THE YEAR. IN MY CONSIDERED OPINION, IN THE PRESENT CASE, IF THE PROFIT ELEMENT EMBEDDED ON SUCH BOGUS PURCHASES FOR THE YEAR OF RS. 28,66,947 / - IS ESTIMATED @20%, THAT WILL MEET THE ENDS OF JUS TICE. ACCORDINGLY AO IS DIRECTED TO ESTIMATE 20% OF THE TOTAL PURCHASES OF RS. 28,66,947/ - AND TO ADD THE SAME TO THE TOTAL INCOME. GROUND NO. 1 OF THE APPEAL IS ACCORDINGLY TREATED AS 'PARTLY ALLOWED'. 6. AGAINST THE ABOVE ORDER, ASSESSEE IS IN FURTHER A PPEAL BEFORE US. 7. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT AO HAS REOPENED ASSESSMENT AFTER RECORDING JUSTIFIABLE REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESS MENT IN SO FAR AS ACCOMMODATION BILL WAS TAKEN BY THE ASSESSEE. I DO NOT FIND ANYTHING WRONG FOR REOPENING OF ASSESSMENT U/S.147 OF THE IT ACT. 8. THE AO ADDED ENTIRE PURCHASES TO THE INCOME OF ASSESSEE. THE CIT(A) FOUND THAT ONLY PROFIT HAS BEEN SUPPRESSED THEREFORE, HE ESTIMATED PROFIT OF 20% OF SUCH PURCHASES AND RESTRICTED THE ADDITION TO THE EXTENT OF 20% OF SUCH PURCHASES. IT WAS ARGUED BY LEARNED AR THAT CBDT VIDE ITS CIRCULAR NO.2/2008 DATED 22/02/2008 HAS HELD THAT ITA NO. 2077/MUM/2017 M/S. M.V. SHAH & CO., 4 ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING OR TRADING OF DIAMONDS AND DECLARES PROFIT OF 6% OR HIGHER, THE AO SHOULD ACCEPT HIS TRADING RESULTS. IN THE INSTANT CA SE, SINCE THE GOODS SO PURCHASED HA VE NOT BEEN SOLD, THE ASSESSEE HAD NOT SHOWN ANY PROFIT ON SUCH GOODS. THEREFORE, APPLYING CBDT CIRCU LAR DATED 22/02/2008 AND K EEPING IN VIEW TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 8% OF SUCH PURCHASES. I DIRECT ACCORDINGLY. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O R DER PRONOUNCED IN THE OPEN COURT ON THIS 27 / 09 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 09 /201 7 KARUNA SR. 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//