ITO 25 (2) (2) [ERSTWHILE ITO 21(1)(1)], MUMBAI V. BHAVESH STEELS, MUMBAI

ITA 2241/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0336 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Bogus purchase; Accommodation entries
• Section: 69C; 142(1); 133(6); 147; 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2241-2243/MUM/2016 (ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12) ITO, WARD 25(2)(2), MUMBAI VS M/S BHAVESH STEELS 101, SHREE YAMUNA APARTMENTS MALAVIYA ROAD, VILE PARLE MUMBAI-59 PAN : AAHFB3103E APPELLANT RESPONDENT APPELLANT BY SHRI RAJESH KUMAR YADAV RESPONDENT BY NONE ITA NO.2608/MUM/2016 (ASSESSMENT YEAR 2010-11) ITO, WARD 2(21, KALYAN VS SHRI DEEPAK CHUNILAL BAJAJ PROP OF M/S DNR CORPORATION FLAT NO.202, SAI DARSHAN SOCIETY RKT COLLEGE ROAD ULHASNAGAR 421 001 PAN : AAWPB4802D APPELLANT RESPONDENT APPELLANT BY SHRI RAJESH KUMAR YADAV RESPONDENT BY NONE ITA NO.2591/MUM/2016 (ASSESSMENT YEAR 2010-11) DY.CIT, 15(1)(2), MUMBAI VS M/S DETECTION INSTRUM ENT INDIA PVT LTD 2 PLOT NO.EL-36, ELECTRONICS ZONE, TTC INDL AREA, MIDC MHAPE, POST BOX NO.9, NAVI MUMBAI-400 710 PAN : AAACD1659F APPELLANT RESPONDENT APPELLANT BY SHRI RAJESH KUMAR YADAV RESPONDENT BY SHRI RISHABH SHAH DATE OF HEARING 01-08-2017 DATE OF PRONOUNCEMENT 04-08-2017 O R D E R PER G MANJUNATHA, AM : THESE ARE FIVE APPEALS FILED BY THE REVENUE IN CAS E OF THREE DIFFERENT ASSESSES ARE DIRECTED AGAINST SEPARATE BUT IDENTICA L ORDERS OF CIT(A) FOR THE ASSESSMENT YEARS 2009-10, 2010-11 & 2011-12. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHE R AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE, EXTRACTED FROM ITA NO. 2241/MUM/2016 FOR THE ASSESSMENT YEAR 2011-12, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN STA INLESS STEEL UTENCILS, FILED ITS RETURN OF INCOME FOR AY 2011-12 ON 30-11-2011 DECLA RING TOTAL INCOME OF RS.11,59,860. SUBSEQUENTLY, THE CASE WAS REOPENED U/S 147 FOR THE REASON THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE AO HAS RECORDED REASON S FOR REOPENING OF 3 ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FRO M THE DGIT (INV) WHICH REVEALED THAT ASSESSEE HAS PURCHASED MATERIALS FROM CERTAIN PARTIES, WHO WERE INVOLVED IN PROVIDING BOGUS BILLS WITHOUT ACTUAL DE LIVERY OF GOODS, AS PER THE LIST PREPARED BY THE MAHARASHTRA SALES-TAX DEPARTMENT. ACCORDINGLY NOTICE U/S 148 WAS ISSUED CALLING FOR RETURN OF INCOME FROM TH E ASSESSEE. SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDI NGLY NOTICES, U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTI CES, THE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED FROM TIME TO TIM E AND FURNISHED RELEVANT DETAILS, AS CALLED FOR. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAS PURCHASED MATERIALS FROM CERTAIN PARTI ES LISTED BY THE MAHARASHTRA SALES-TAX DEPARTMENT AS HAWALA OPERATOR S INVOLVED IN PROVIDING ACCOMMODATION BILLS WITHOUT ACTUAL DELIVERY OF GOOD S. THE AO FURTHER OBSERVED THAT DURING THE COURSE OF ENQUIRY CONDUCTE D BY DDIT (INV), A STATEMENT WAS RECORDED FROM SHRI BHAVESH A JAIN, PA RTNER OF THE FIRM WHEREIN HE HAS STATED THAT THE FIRM HAS PURCHASED MATERIALS FROM GREY MARKET BY CASH AND OBTAINED BILLS FROM CERTAIN PARTIES. BASED ON SUCH INFORMATION, THE AO ISSUED NOTICES U/S 133(6) TO THE PARTIES FROM WHOM THE ASSESSEE CLAIMS TO HAVE PURCHASED MATERIALS. THE NOTICES SENT U/S 133(6) W ERE RETURNED UNSERVED IN 4 ALL THE CASES EXCEPT IN THE CASES OF SHRI BP SHAH & CO & RAJKAMAL STEEL CENTRE. THE AO FURTHER OBSERVED THAT M/S BP SHAH & CO AND R AJKAMAL STEEL CENTRE HAVE FILED THEIR REPLIES WHEREIN THY HAVE STATED TH AT THEY HAVE ONLY ISSUED BILLS. THEREFORE, THE AO ISSUED SHOW CAUSE NOTICE TO THE A SSESSEE AND ASKED TO FURNISH AS TO WHY PURCHASES MADE FROM THE SO-CALLED HAWALA OPERATORS CANNOT BE DISALLOWED U/S 69C OF THE ACT. IN RESPONSE TO S HOW CAUSE NOTICE, THE ASSESSEE VIDE ITS LETTER DATED 14-03-2014 SUBMITTED THAT THE PURCHASES FROM THE SAID PARTIES ARE GENUINE AND SUPPORTED BY PROPE R PURCHASE BILLS AND PAYMENTS WERE MADE THROUGH CHEQUES. IN SUPPORT OF HIS ARGUMENT, FILED COPIES OF PURCHASE BILLS AND STOCK REGISTERS. THE AO, CONSIDERING THE STATEMENT GIVEN BY THE PARTNER OF THE FIRM BEFORE DDIT(INV), HELD THAT IT IS UNDOUBTEDLY CLEAR THAT THE ASSESSEE HAS BEEN OBTAINING ACCOMMOD ATION BILLS WITH A VIEW TO INFLATE THE PURCHASES. THE AO FURTHER OBSERVED THA T WHILE ANSWERING TO A SPECIFIC QUESTION BEFORE THE DDIT(INV), THE PARTNER OF THE FIRM ADMITTED THAT THE FIRM HAS PURCHASED GOODS FROM THE GREY MARKET I N CASH AND OBTAINED BILLS FROM THE HAWALA OPERATORS. THEREFORE, THE AO OPINE D THAT PURCHASES FROM THE SO-CALLED HAWALA OPERATORS ARE NOT GENUINE AND ACCO RDINGLY MADE ADDITIONS U/S 69C OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE 5 CIT(A). BEFORE CIT(A), THE ASSESSEE HAS REITERATED ITS STAND BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT THE PURCHASES / SAL ES MADE WERE DULY RECORDED IN THE PURCHASE REGISTER / SALES REGISTER AND STOCK REGISTER. THESE REGISTERS WERE PRODUCED BEFORE THE AO FOR VERIFICAT ION AND THE AO HAS NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OR STOCK STATEMENTS. THE AO HAS NEVER DOUBTED SALES DECLARED FOR THE RELEVANT F INANCIAL YEARS. WHEN SALES ARE NOT DOUBTED AND BOOKS OF ACCOUNT ARE NOT REJECT ED, THE AO SHOULD HAVE ACCEPTED THAT PURCHASES FROM THOSE PARTIES ARE GENU INE, MORE SO, WHEN THE SAME ARE SUPPORTED BY PROPER BILLS AND ALSO PAYMENT IS MADE THROUGH BANKING CHANNELS. IN SUPPORT OF THE ARGUMENT, ASSESSEE REL IED UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF AHEMDABAD ITAT IN THE CASE OF VIJAY PROTEINS PVT LTD VS CIT REPORTED IN 58 ITD 428 (AHD ). 5. THE CIT(A), AFTER CONSIDERING THE RELEVANT SUBMISSI ONS OF THE ASSESSEE OBSERVED THAT NO DOUBT, THE SUPPLIERS WERE FOUND TO BE ENGAGED IN ISSUING BOGUS BILLS WITHOUT ACTUAL DELIVERY OF GOODS. HOWE VER, THE FACTS REMAIN THAT THE ASSESSEE HAS SUBMITTED QUANTITATIVE DETAILS OF STOCK WITH RESPECT TO SALES AND CORRESPONDING PURCHASES FROM THE PARTIES. THE CIT(A) FURTHER OBSERVED THAT THE AO HAS NEVER DISPUTED OR EXAMINED THE ASPE CT OF SALES RECEIPTS. THE AO HAD MADE ADDITIONS SOLELY ON THE BASIS OF INFORM ATION RECEIVED FROM THE 6 VAT DEPARTMENT WITHOUT CONDUCTING FURTHER ENQUIRY. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUN T PAYEE CHEQUE IT WAS INCUMBENT UPON THE AO TO HAVE VERIFIED IMMEDIATE CA SH WITHDRAWALS FROM THE BANK OF THE ASSESSEE AND ALSO FROM THE BANK OF THE SUPPLIERS. NO SUCH EXERCISE HAS BEEN DONE OR FINDINGS WERE RECORDED BY THE AO. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BACK FROM THE SUPPLIERS. IN THE ABSENCE OF ANY OTHER FURTHER ENQUIRY WITH REGARD TO THE INCORRECTNESS OF BOOKS OF ACCOUNT OR FINDING AS TO RECEIPT OF CASH BACK FR OM THE ALLEGED SUPPLIERS, THE PURCHASES FROM THE ABOVE PARTIES CANNOT BE REJECTED IN TOTO. THE CIT(A) FURTHER OBSERVED THAT THE AO HAD MADE ADDITION AT 2 5% OF ALLEGED PURCHASES IN ASSESSEES OWN CASE ON SIMILAR ISSUE FOR EARLIER YE ARS. THEREFORE, THERE IS NO REASON FOR THE AO TO MAKE ADDITION AT 100% OF SUCH PURCHASES FROM THE ALLEGED HAWALA OPERATORS. WITH THESE OBSERVATIONS AND ALSO BY RELYING UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS SMIT P SHETH, THE CIT(A) DIRECTED THE AO TO ESTIMATE NET PROFIT A T 12.5% ON THE TOTAL PURCHASES FROM THE ALLEGED HAWALA OPERATORS. AGGRI EVED BY THE CIT(A)S ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD.DR SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE ADDITION MADE BY THE AO IS BASED ON THE INFORMA TION RECEIVED FROM THE 7 DDIT (INV) AND SALES-TAX DEPARTMENT OF MAHARASHTRA WITH REGARD TO THE BOGUS PURCHASES MADE BY THE ASSESSEE FROM HAWALA OPERATOR S WITHOUT SUPPLY OF GOODS. THE CIT(A) ERRED IN NOT CONSIDERING THE ADM ISSION BY THE HAWALA DEALERS BEFORE THE SALES-TAX AUTHORITIES THAT THEY HAVE ACCEPTED ISSUE OF BOGUS BILLS WITHOUT ACTUAL DELIVERY OF GOODS. IN SPITE O F BRINGING COGENT EVIDENCE TO SUPPORT ADDITIONS MADE BY THE AO, THE CIT(A) TURNED DOWN ALL THE EFFORTS MADE BY THE AO TO DELETE ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES. THE DR FURTHER REFERRING TO THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF NK PROTIENS LTD VS CIT IN SLP NO.759 OF 2017 DATED 26- 01-2017 SUBMITTED THAT ONCE IT IS PROVED THAT THE PURCHASES ARE BOGUS, THE N, ADDITION SHOULD BE MADE FOR ENTIRE PURCHASES AND NOT FOR PROFIT ELEMENT EMB EDDED IN SUCH PURCHASES. 7. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO MADE ADDI TIONS TOWARDS PURCHASES FROM CERTAIN PARTIES ON THE GROUND THAT THEY WERE I NVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE AO FURTHER OBSERVED THAT INFORMATION RECEIVED FROM DDIT (INV) AND REPORT OF SALES-TAX DEPARTMENT OF MAHARASHTRA CATEGORICALLY FOUND THAT THE SAID PARTIES WERE INVOLVED IN PROVIDING BOGUS BILLS WITHOUT ACTUAL DE LIVERY OF GOODS. ACCORDING TO THE AO, NOTICES SENT TO THESE PARTIES WERE RETURNED UNSERVED BY POSTAL 8 AUTHORITIES WITH REMARK, NO SUCH PARTIES ARE AVAIL ABLE AT THE GIVEN ADDRESS. THE AO FURTHER OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE THE PARTIES IN PERSON. THOUGH ASSESSEE HAS FILED CERTAIN EVIDENCE S INCLUDING PURCHASE BILLS AND PAYMENT PROOF FAILED TO SUBSTANTIATE THE PURCHA SES FROM THE SAID PARTIES WITH FURTHER EVIDENCES IN THE BACKDROP OF SPECIFIC ALLEGATION MADE BY THE AO THAT THEY ARE HAWALA OPERATORS INVOLVED IN PROVIDIN G ACCOMMODATION ENTRIES. THE CONTENTION OF THE ASSESSEE IS THAT MERELY BECAU SE THE PARTIES HAVE NOT RESPONDED TO THE NOTICE, ADDITION CANNOT BE MADE TO WARDS PURCHASES WHICH ARE SUPPORTED BY VALID PURCHASE BILLS AND ALSO THAT PAYMENTS WERE MADE BY CHEQUE. THE ASSESSEE FURTHER CONTENDED THAT THE AO HAS NOT POINTED OUT ANY IRREGULARITIES IN THE BOOKS OF ACCOUNT OR STOCK BOO KS AND IN THE ABSENCE OF ANY FINDING AS TO THE INCORRECTNESS OF BOOKS OF ACCOUNT , ADDITION CANNOT BE MADE SOLELY ON THE BASIS OF THIRD PARTY INFORMATION, THA T TOO, WITHOUT FURTHER ENQUIRIES WITH REGARD TO THE GENUINENESS OF PURCHAS ES. 8. HAVING HEARD AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE AOS IMPUGNED ALLEGATION IS THAT THE SO-CALLED PARTIES A RE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES AS PER THE LIST PUBLISHED BY MAHARASHTRA SALES-TAX DEPARTMENT. ON THE OTHER HAND, THE ASSESSEE HAS FU RNISHED CERTAIN EVIDENCES IN THE FORM OF PURCHASE BILLS AND PAYMENT PROOF; HO WEVER, FAILED TO PRODUCE 9 THE PARTIES IN PERSON BEFORE THE AO FOR EXAMINATION . THOUGH THE ASSESSEE HAS PRODUCED CERTAIN DETAILS TO PROVE THE PURCHASES FRO M THE SAID PARTIES AS GENUINE, IN VIEW OF THE FACT THAT THE ASSESSEE COUL D NOT PROVE THE EXISTENCE OF THE PARTIES AND ALSO COULD NOT REBUT THE FINDING OF THE AO IN THE BACKDROP OF REPORT OF MAHARASHTRA SALES-TAX DEPARTMENT, THE SAI D PURCHASES COULD NOT BE ACCEPTED AS GENUINE. BUT KEEPING IN VIEW THE FACT THAT THE AO HAS NOT DOUBTED SALES DECLARED BY THE ASSESSEE AND ALSO NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT OR STOCK REGISTERS, A REASONABLE I NFERENCE CAN BE DRAWN THAT THE ASSESSEE HAS OBTAINED BILLS FROM THE HAWALA OPE RATORS TO COVER UP THE PURCHASES FROM THE GREY MARKET. UNDER THESE FACTS AND CIRCUMSTANCES, WHAT NEEDS TO BE TAXED IS ONLY THE PROFIT ELEMENT EMBEDD ED IN SUCH PURCHASES AND NOT ENTIRE PURCHASES SHOWN TO HAVE BEEN MADE FROM T HOSE HAWALA OPERATORS. 9. HAVING SAID SO, LET US EXAMINE WHAT IS REASONABLE P ROFIT IN CASE OF THESE TRANSACTIONS. VARIOUS COURTS AND TRIBUNALS HAVE UP HELD ESTIMATION OF NET PROFIT RANGING FROM 12.5% TO 25% DEPENDING UPON FAC TS OF EACH CASE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY PRO TEINS LTD VS CIT (2015) 58 TAXMAN.COM414 (GUJ) HAS UPHELD ESTIMATION OF NET PR OFIT AT 25% ON BOGUS PURCHASES. THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF SMIT P SHETH 356 ITR 451 (GUJ) HAS OBSERVED THAT NO UNIFORM YARDSTICK C AN BE APPLIED TO ESTIMATE 10 NET PROFIT BECAUSE OF VARIED NATURE OF BUSINESS. T HEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RELYIN G UPON THE RATIO OF THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE VIEW THT ONLY P ROFIT ELEMENT EMBEDDED IN BOGUS PURCHASES NEEDS TO BE TAXED AND NOT THE ENTIR E PURCHASES FROM THE ABOVE PARTIES. THE CIT(A), AFTER CONSIDERING THE RELEVANT FACTS OF THE CASE HAS ESTIMATED THE NET PROFIT AT 12.5% ON TOTAL BOGUS PU RCHASES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A); HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEALS FILED BY THE REVE NUE. 10. THE FACTS AND ISSUES INVOLVED IN ITA NO.2242/MUM/20 16 AND ITA NO.2243/MUM/2016 ARE IDENTICAL TO THE FACTS DISCUSS ED ABOVE IN ITA NO. 2241/MUM/2016 EXCEPT TO THE EXTENT OF NET PROFIT ES TIMATED BY THE CIT(A). THEREFORE, FOR THE DETAILED DISCUSSION IN THE PRECE DING PARAGRAPHS, WE DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON BOGUS PUR CHASES IN THESE YEARS ALSO. ACCORDINGLY, APPEALS FILED BY THE REVENUE IN ITA NO .2242/MUM/2016 AND ITA NO.2243/MUM/2016 ARE ALSO DISMISSED. 11. THE FACTS AND ISSUES INVOLVED IN ITA NO.2608/MUM/20 16 AND ITA NO.2591/MUM/2016 ARE ALSO IDENTICAL TO ITA NO.2241/ MUM/2016, EXCEPT TO THE EXTENT OF NET PROFIT ESTIMATED BY THE CIT(A). IN THIS CASE, THE CIT(A) HAS 11 ESTIMATED NET PROFIT OF 25% ON TOTAL BOGUS PURCHASE S. SINCE THE ASSESSEE IS NOT IN APPEAL AGAINST THE ORDER OF CIT(A), FOR THE SAME REASONS GIVEN IN ITA NO.2241/MUM/2011, WE UPHOLD THE ORDER OF CIT(A) EST IMATING NET PROFIT AT 25% ON TOTAL BOGUS PURCHASES AND DISMISS THE APPEAL S FILED BY THE REVENUE. 12. THE FACTS AND ISSUE INVOLVED IN ITA NO. 2591/MUM/20 16 ARE ALSO IDENTICAL TO ITA NO.2241/MUM/2016. THEREFORE, FOR THE DETAIL ED DISCUSSION IN THE PRECEDING PARAGRAPHS, WE DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON BOGUS PURCHASES. ACCORDINGLY, REVENUE APPEAL IS DI SMISSED. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH AUGUST, 2017. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 04 TH AUGUST, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI