Shri Sanjay Kumar Mansukhlal Dhabba, V. The Income Tax Officer,

ITA 212/RJT/2006

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2998 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-12-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 19-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR ADHIA
• Assessee Lawyers: JM SAHAY
• Keywords: Bogus purchase
• Section: 40A(3); 143(3); 131; 145; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 212/RJT/2006 - AY 1995-96 I.T.A. NO. 450/RJT/2006 - AY 1995-96 SHRI SANJAYKUMAR MANSUKHLAL DHABBA VS ITO, WD.1(2) PROP OF BHAVNATH SALES CORP JUNAGADH SAMBALPUR, JUNAGADH PAN : NOT AVAILABLE (APPELLANT) (RESPONDENT) REVENUE BY : SHRI DR ADHIA ASSESSEE BY : SHRI JM SAHAY O R D E R A.L. GEHLOT : ITA NO.212/RJT/2006 IS QUANTUM APPEA L FILED BY THE ASSESSEE AGAINST ORDER OF CIT(A)-IV, RAJKOT DATEDE 24-11-200 4 FOR ASSESSMENT YEAR 1995- 96 WHEREAS ITAT NO.450/RJT/2006 IS PENALTY APPEAL F ILED BY THE ASSESSEE AGAINST THE ORDER ALSO OF CIT(A)-IV, RAJKOT DATED 1 8-10-2006 WHEREBY HE CONFIRMED THE PENALTY OF RS. 24,09,635 IMPOSED U/S 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 1995-96. ITA NO.212/RJT/2006 2. THE ASSESSEE FILED THIS APPEAL LATE BY 473 DAYS. THE ASSESSEE FILED CONDONATION APPLICATION SUPPORTED BY AN AFFIDAVIT. IN THE CONDONATION APPLICATION IT IS SUBMITTED THAT THE ASSESSEE IS A COMMON MAN O F MEANS. A SEARCH WAS CONDUCTED BY THE CIVIL DEPARTMENT AT THE BUSINESS P REMISES OF CAPTAIN ENTERPRISES (P) LTD. IN CONSEQUENCE TO SEARCH U/S 132 OF THE ACT, THE FACTS WHICH CAME OUT FINALLY WERE THAT M/S SHRINATHJI INDUSTRIE S BELONGS TO CAPTAIN SATISH R AHIR AND NO BUSINESS WAS CARRIED OUT DURING THE LAS T FIVE YEARS SINCE ITS INCEPTION. THE PURCHASES MADE BY THE ASSESSEE WERE DISALLOWED ON THE GROUND THAT PURCHASES SUPPORTED BY BILLS OF M/S SHRINATHJI INDU STRIES WERE BOGUS. THE ASSESSEE COULD COME TO KNOW THAT HE SHOULD FILE QUA NTUM APPEAL ONLY ON RECEIPT ITA NO.212 & 450/RJT/2006 2 OF PENALTY ORDER U/S 271(1)(C) OF THE ACT ON 27-01- 2006 ON THE DISALLOWANCE CONFIRMED BY THE CIT(A). THE LD.AR SUBMITTED THAT ON MERIT, THE ASSESSEE HAS GOOD CASE AND IN THE LIGHT OF JUDGMENT OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES VS CIT 115 ITR 27 (GUJ) WHEREIN IT HAS BEEN HELD THAT NO MERITORIOUS CASE SHOULD SUFFE R ON THE GROUND OF LIMITATION AND THE DELAY TO BE CONDONED TAKING VERY LIBERAL VI EW. THE LD.DR, ON THE OTHER HAND, OBJECTED TO THE CONDONATION PETITION OF THE A SSESSEE FOR DELAY ON THE GROUND THAT THE DELAY IS SUBSTANTIAL AND THE ASSESS EE HAS NO GOOD REASON FOR SUCH DELAY. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVE OF THE PARTIES, RECORD PERUSED. IN THE LIGHT OF JUDGMENT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES VS CIT (SUPRA), WE CO NDONE THE DELAY IN THE INTEREST OF JUSTICE. 4. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS FOLLOWS: 1. THE LD.A.O. ERRED ON FACTS AND IN LAW IN ADDING RS.60,30,805/- ON THE ALLEGED GROUND THAT THE PURCH ASES ARE BOGUS. THE LD.CIT(A) ERRED IN CONFIRMING IT. 2. THE LD.A.O. ERRED IN LAW AS WELL AS ON FACTS IN ALTERNATIVELY APPLYING PROVISIONS OF SECTION 40A(3) OF THE ACT. THE LD.CIT(A) ERRED IN CONFIRMING IT. 5. THE BRIEF FACTS OF THE CASE ARE THAT ORIGINAL AS SESSMENT U/S 143(3) WAS COMPLETED ON 24-03-1998. THE ASSESSEE FILED APPEAL AGAINST THE SAID ORDER BEFORE THE CIT(A). THE CIT(A) SET ASIDE MATTER TO THE FILE OF THE ASSESSING OFFICER VIDE ORDER DATED 26-03-2001. THE DEPARTMENT FILED APPEAL AGAINST THE ORDER OF THE CIT(A) BEFORE THE ITAT. THE ITAT VIDE ITA NO.2 43/RJT/2001 DATED 28-07- 2005 DISMISSED THE APPEAL OF THE DEPARTMENT AND CON FIRMED THE ORDER OF CIT(A). IN COMPLIANCE TO THE DIRECTION OF THE CIT(A), THE A SSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE EXPLANATION AND DETAILS AND BOOKS OF ACCOUNT FOR ITA NO.212 & 450/RJT/2006 3 COMPLETION OF THE PROPOSED ASSESSMENT. THE ASSESSE E SUBMITTED THAT THE BOOKS OF ACCOUNT WERE SEIZED BY THE SALES-TAX DEPARTMENT SO MUCH SO THAT THE ASSESSEE DID NOT KNOW THAT BUT THE ASSESSING OFFICE R KNEW THE CUSTODY OF THE SEIZED RECORD. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN PURCHASES OF GROUND NUT OIL FOR RS.60,30,804 FROM M /S SHRINATHJI INDUSTRIES. SHAHPUR. M/S SHRINATHJI INDUSTRIES UNDER THE PROPR IETORSHIP OF WAS SHRI ASHWINKUMAR RATILAL ENGAGED IN BOGUS BILLING BEING ACTUALLY RUN BY SHRI MUKESH C KAMDAR, DIRECTOR OF CAPTAIN ENTERPRISE PVT LTD, JUNAGADH, WHO HAS ADMITTED THE FACTS IN HIS STATEMENT RECORDED U/S 131 OF THE I.T. ACT THAT THIS BILLING BUSINESS WAS BEING RUN FROM THE PREMISES OF CAPTAIN ENTERPRI SE PVT LTD AT VISHAL TOWER, JUNAGADH. FOR FURTHER VERIFICATION OF THE GENUINEN ESS OF THE PURCHASES SUMMONS U/S 131 WERE ISSUED TO SOME TRUCK OWNERS, WHOSE NAM ES ARE MENTIONED BY THE ASSESSING OFFICER ON PAGE 3 OF HIS ORDER. THE ASSE SSING OFFICER NOTED THAT THE TRUCK OWNERS DENIED TO HAVE MADE ANY TRANSPORT WORK FOR THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HIMSELF IN DULGED IN OBTAINING BOGUS PURCHASE BILLS OF GROUNDNUT OIL AND HAS SHOWN IT AS PURCHASES, WHEREAS, NO PURCHASES WERE ACTUALLY MADE. IN VIEW OF THESE FAC TS, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT U/S 145 OF THE ACT. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE MADE CASH PAYMENTS. THEREF ORE, SUCH PURCHASES ARE DISALLOWABLE U/S 40A(3). THE ASSESSING OFFICER ACC ORDINGLY REPEATED THE ADDITION OF RS.60,30,804 6. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE DID NOT PRODUCE BOOKS O F ACCOUNT NOR DID HE GIVE THE REQUIRED INFORMATION TO ENABLE THE ASSESSING OFFICE R TO EXERCISE THE STATUTORY POWER TO OBTAIN THE CUSTODY OF THE SEIZED RECORD FR OM THE SALES-TAX DEPARTMENT FOR THE PURPOSE OF ASSESSMENT. 7. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.212 & 450/RJT/2006 4 8. THE LD.AR SUBMITTED THAT IN THE FIRST ROUND OF L ITIGATION THE CIT(A) HAS SENT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R WITH CERTAIN SPECIFIC DIRECTION WHICH ARE RECORDED BY THE CIT(A) ON PAGES 4 TO 6 OF HIS ORDER. THE CIT(A) HAD DIRECTED THE ASSESSING OFFICER TO MAKE THE ENQUIRIE S SUGGESTED / DISCUSSED AT PARAGRAPHS 4, 4.1, 4.2, 4.3 AND 4.5 OF CIT(A)S ORD ER. THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER IN THE SECOND ROUND OF THE LI TIGATION DID NOT CARRY OUT THE DIRECTION GIVEN BY THE CIT(A). WHEN THE LOWER AUTH ORITY DID NOT COMPLY WITH THE DIRECTION OF THE HIGHER AUTHORITY, THE ORDER OF THE LOWER AUTHORITY IS LIABLE TO BE QUASHED. 9. THE LD.DR ON THE OTHER HAND HAS RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THERE WAS NO SPECIFIC DIRECTION GIVE N BY THE CIT(A), BUT IT WAS A SIMPLE DISCUSSION ON THE ISSUE ON THE BASIS OF WHIC H THE CIT(A) REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER. 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES, RECORD PERUSED. WE DO NOT FIND SUBSTANCE IN THE SUBMISSIONS OF THE LD.AR THAT THE ASSESSING OFFICER DID NOT CARRY OUT THE DIRECTION OF CIT(A), THEREFORE, THE ORDER OF ASSESSING OFFICER IS LIABLE TO BE QUASHED. ON PERUSAL OF THE ORDER OF THE CIT(A) PASSED IN THE FIRST ROUND OF LITIGATION BEFORE HIM WE FIND TH AT THE CIT(A) AT PARAGRAPH 5 OF HIS ORDER HIMSELF WRITTEN THAT UNDER THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO MAKE THE ENQUIRIES ON THE TIME SUGGESTE D / DISCUSSED IN PARA 4 OF THE ORDER. THE LD.DR HAS RIGHTLY SUBMITTED THAT THESE ARE NO SPECIFIC DIRECTION BUT ONLY A GUIDELINE AND DISCUSSION OF THE CIT(A). THU S, THIS CONTENTION OF THE LD.AR IS REJECTED. 11. THE ADMITTED FACTS OF THE CASE ARE THAT THE ASS ESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER ON TH E GROUND THAT THE BOOKS OF ACCOUNT WERE SEIZED BY THE SALES-TAX DEPARTMENT. T HE LD.DR HAS RIGHTLY POINTED OUT THAT THE ONUS IS ON THE ASSESSEE TO OBTAIN THE COPIES OF THOSE SEIZED BOOKS OF ACCOUNT AS PER THE PROVISIONS OF SALES-TAX LAWS. IT APPEARS FROM THE RECORD ITA NO.212 & 450/RJT/2006 5 THAT THE ASSESSEE WAS NOT READY TO FURNISH THE REQU IRED DETAILS EXAMINATION BY THE ASSESSING OFFICER IN THE SECOND ROUND OF PROCEE DINGS. THE CASE OF THE REVENUE THAT THE PURCHASES MADE BY THE ASSESSEEE AT RS.60,30,804 FROM M/S SHRINATHJI INDUSTRIES WHICH IS ON THE BASIS OF BOGU S BILLS. ON PERUSAL OF THE ORDER OF THE CIT(A) PASSED ON 26-02-2001 IN THE FIRST ROU ND OF PROCEEDINGS BEFORE HIM AT PARAGRAPH 4.1 IT HAS BEEN NOTED THAT THE ASSESSI NG OFFICER DID NOT RULE OUT THE POSSIBILITY OF ACTUAL PURCHASE OF GOODS FROM PARTIE S OTHER THAN M/S SHRINATHJI INDUSTRIES. IN FACT, AT PARAGRAPH 10 OF THE ASSESS MENT ORDER PASSED IN THE FIRST ROUND OF PROCEEDINGS WHICH IS REPRODUCED BY THE CIT (A) ON PAGE 5 OF HIS ORDER, THE ASSESSING OFFICER HAS ADMITTED THAT THE GOODS S HOWN IN THE BILLS OF M/S SHRINATHJI INDUSTRIES WERE NOT RECEIVED FROM THAT P ARTY BUT PURCHASES FROM DIFFERENT SOURCES. IN THE SECOND ROUND OF PROCEEDI NGS, THE ASSESSING OFFICER, AFTER REJECTING THE BOOKS OF ACCOUNT MADE THE ADDIT ION OF THESE BOGUS PURCHASES OF RS.60,35,804 WITHOUT DISTURBING THE OTHER ITEMS IN THE PROFIT AND LOSS ACCOUNT. THUS THE FACTS OF THE CASE EMERGED ARE THAT THE ASS ESSEE HAS PURCHASED THE GOODS NOT FROM M/S SHRINATHJI INDUSTRIES WHO ARE IN DULGED IN ISSUING BOGUS BILLS, BUT PURCHASED FROM DIFFERENT SOURCES THE DETAILS OF WHICH ARE NOT FURNISHED BY THE ASSESSEE. IT IS WELL KNOWN THAT IF PURCHASES ARE M ADE FROM OPEN MARKET WITHOUT INSISTING FOR THE GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THOSE PRODUCTS AT A MUCH LOWER RATE AS COMPARED TO THE RATE WHICH THEY MAY CHARGE IN CASE THE DEALER HAS TO GIVE A GENUINE SALE INVOICE IN RESPEC T OF THAT SALE AND SUPPLY THE GOODS. THERE MAY BE VARIOUS FACTORS DUE TO WHICH T HERE IS BOUND TO BE A SUBSTANTIAL DIFFERENCE BETWEEN THE PURCHASE PRICE O F UNACCOUNTED MATERIAL AND RATE OF PURCHASE OF ACCOUNTED FOR GOODS. THERE MAY BE A SAVING ON ACCOUNT OF SALES-TAX AND OTHER TAXES AND DUTIES WHICH MAY BE L EVIABLE IN RESPECT OF MANUFACTURE OR SALE OF GOODS IN QUESTION. THE SUPP LIERS OR THE MANUFACTURERS MAKE A SUBSTANTIAL SAVING IN THE INCOME-TAX IN RESP ECT OF INCOME FROM SALE OF UNACCOUNTED GOODS PRODUCED AND SOLD BY THEM. THIS MAY ALSO BE ONE OF THE FACTORS DUE TO WHICH THE SELLER MAY BE WILLING TO C HARGE LOWER RATES FOR UNACCOUNTED GOODS AS COMPARED TO ACCOUNTED FOR GOOD S. THE ADDITION ON ACCOUNT OF SUCH EXTRA BENEFITS IS CERTAINLY WARRANT ED FOR THE PURPOSE OF ITA NO.212 & 450/RJT/2006 6 CALCULATION OF CORRECT PROFIT FROM SUCH TRANSACTION S. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, NATURE OF BUSINESS AND SU RROUNDING CIRCUMSTANCES, IT WILL BE FAIR AND JUST IF ADDITION TO THE EXTEND OF 25% I S SUSTAINED . WE ACCORDINGLY SUSTAIN THE ADDITION TO THE EXTENT OF 25% OF RS.60, 35,804. 12. AS REGARDS THE CASE OF THE REVENUE THAT IT IS D ISALLOWABLE U/S 40A(3) WE FIND THAT WHEN BOOKS OF ACCOUNT IS REJECTED AND EST IMATION IS MADE, THE PROVISIONS OF SECTION 40A(3) IS NOT APPLICABLE. 13. IN THE LIGHT OF ABOVE DISCUSSION, WE RESTRICT T HE ADDITION TO THE EXTENT OF 25% OF BOGUS PURCHASE OF RS. 60,35,804,. THE ASSES SING OFFICER IS DIRECTED ACCORDINGLY. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.450/RJT/2006 14. IN THIS APPEAL THE PENALTY IMPOSED BY THE ASSES SING OFFICER AND CONFIRMED BY THE CIT(A) IS CHALLENGED. IN VIEW OF OUR DISCU SSION AGAINST THE QUANTUM APPEAL DECIDED ABOVE AND AN ESTIMATION OF PROFIT IS RESORTED TO, THERE IS NO SCOPE FOR IMPOSITION OF ANY CONCEALMENT PENALTY. WE ESTI MATED THE PROFIT AT 25% NOT BECAUSE THE PURCHASES SHOWN IN THE NAME OF M/S SHRI NATHJI INDUSTRIES BOGUS, BUT ON FINDING THAT EVEN AFTER TREATING THE PURCHAS ES SHOWN IN THE NAME OF M/S SHRINATHJI INDUSTRIES THERE ARE NO DISTURBANCE MADE IN THE PROFIT & LOSS ACCOUNT ACCOUNT AND EVEN THE ASSESSING OFFICER AGREED IN TH E ASSESSMENT MADE IN THE FIRST ROUND OF ASSESSMENT PROCEEDINGS THAT THE PURC HASES MIGHT HAVE BEEN EFFECTED BY THE ASSESSEE FROM THE PARTIES OTHER THA N THE PARTY SHOWN, THE DETAILS OF WHICH ARE NOT DIVULGED BY THE ASSESSEE THEREBY MEANING THAT THE PURCHASES WERE EFFECTED FROM THE GREY MARKET IN RESPECT OF WH ICH PURCHASES THE PROFITS MARGIN IS TEND TO BE MORE COMPARED TO WHITE PURCHAS ES. THERE CANNOT BE ANY CONCEALMENT PENALTY ON ESTIMATION OF PROFIT. THIS IS A CASE WHERE PURELY AN ESTIMATION OF PROFIT IS RESORTED TO WHICH WILL NOT TANTAMOUNT TO CONCEALMENT OF PARTICULARS OF INCOME OR SUBMISSION OF INACCURATE P ARTICULARS OF INCOME. WE, ITA NO.212 & 450/RJT/2006 7 THEREFORE, CANCEL THE PENALTY ORDER DATED 27-01-200 6 PASSED U/S 271(1)(C) OF THE ACT. 15. IN THE RESULT, THE APPEAL IN ITA NO.212/RJT/200 6 IS PARTLY ALLOWED AND THE APPEAL IN ITA NO.450/RJT/2006 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-12-2010 SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 16 TH DECEMBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-IV, RAJKOT 4. THE CIT-III, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT