HIGHTECH ENGINEERS, MUMBAI V. ACIT 19(1), MUMBAI

ITA 2301/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8926 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 29 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: 2010-2011
• Appeal Filed On: 28-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Opportunity of cross examination; Third party statement; Accommodation entries
• Section: 69C; 133(6)

Judgement Text

1 ITA NO.2301/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2301/MUM/2016 (ASSESSMENT YEAR 2010-11) HITECH ENGINEERS 477-479, MAULANI AZAD ROAD GOLE DEVAL, MUMBAI 400 004 PAN : AAAFH0253L VS THE ACIT- 19(1), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY NONE RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 24-10-2017 DATE OF PRONOUNCEMENT 27-10-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 30, MUMBAI DATED 11-01-2016 AND IT PERTAINS TO AY 2 010-11 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I N THE BUSINESS OF CIVIL CONSTRUCTION, FILED ITS RETURN OF INCOME FOR THE AS SESSMENT YEAR 2010-11 DECLARING TOTAL INCOME OF RS.2,16,40,598. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142 (1) WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED 2 ITA NO.2301/MUM/2016 FROM TIME TO TIME AND FURNISHED THE DETAILS, AS CAL LED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN MATERIAL PURCHASES OF RS.18,19,62,880 FROM 109 PARTIES. TO ASCERTAIN THE CORRECTNESS OF PURCHASES CLAIMED BY THE ASSESSEE, THE AO CALLED UP ON THE ASSESSEE TO FURNISH NECESSARY DETAILS OF PURCHASES ABOVE RS.1 LAKH MADE FROM THOSE PARTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN ORD ER TO VERIFY THE GENUINENESS OF TRANSACTION OF MATERIAL PURCHASES, I NFORMATION U/S 133(6) OF THE ACT WERE CALLED FOR FROM THE PARTIES. THE NOTI CES ISSUED U/S 133(6) IN RESPECT OF 8 PARTIES LISTED BY THE AO IN HIS ASSESS MENT ORDER AT PARAGRAPH 4 WERE RETURNED UNSERVED WITH REMARKS NO KNOWN OR UNCLAIMED. THEREAFTER, THE AR OF THE ASSESSEE WAS APPRISED OF WITH THE FAC TS AND ASKED TO FURNISH NEW ADDRESS OF THE PARTIES AND FILED LEDGER COPIES OF T HOSE PARTIES FOR AYS 2009-10 TO 2010-11. THE ASSESSEE HAS FILED COPY OF LEDGER ACCOUNTS, BILLS, DELIVERY CHALLANS AND PROOF OF PAYMENT; HOWEVER, FAILED TO F URNISH NEW ADDRESSES OF THE PARTIES FROM WHOM PURCHASES WERE MADE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES FROM 8 PARTIES, WHO ARE LISTED AS SUSPICIOUS DEALERS INVOLVED IN PROVIDING ACCOMMODATION ENTRIES BY THE MAHARASHTRA SALES-TAX DEPARTMENT. BASED ON THE ENQUIRIES CONDU CTED DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS AND ALSO ON THE BAS IS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT, THE AO CAME TO THE CONCLUSION THAT 3 ITA NO.2301/MUM/2016 THE PURCHASES FROM THE THOSE 8 PARTIES WERE BOGUS I N NATURE AS THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES WI TH NECESSARY EVIDENCES. THE AO FURTHER OBSERVED THAT THOUGH THE ASSESSEE HA S FURNISHED BILLS AND PAYMENT PROOF, FAILED TO FURNISH FURTHER EVIDENCES TO PROVE THE GENUINENESS OF TRANSACTIONS IN THE BACKDROP OF FINDINGS OF MAHARAS HTRA SALES-TAX DEPARTMENT THAT THE PARTIES ARE INVOLVED IN PROVIDING ACCOMMO DATION ENTRIES. THEREFORE, HE OPINED THAT PURCHASES FROM THE ABOVE PARTIES ARE BOGUS IN NATURE AND ACCORDINGLY MADE ADDITIONS OF RS.72,64,648 U/S 69C OF THE INCOME-TAX ACT, 1961. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS RE ITERATED ITS STAND TAKEN BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT PURCHASES FROM ABOVE PARTIES ARE GENUINE IN NATURE AND IT HAS FURNISHED NECESSARY EVIDENCES IN THE FORM OF PURCHASE BILLS, DELIVERY CHALLANS AND PAYME NT PROOF. THE AO HAS TREATED PURCHASES FROM THOSE PARTIES AS BOGUS IN NA TURE MERELY ON THE BASIS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEP ARTMENT IGNORING ALL EVIDENCES FILED TO JUSTIFY THE PURCHASES. THE ASSE SSEE FURTHER SUBMITTED THAT IT IS NOT THE CASE OF THE AO THAT THE MONEY HAS FLOWN BACK TO THE ASSESSEE FROM THOSE PARTIES. IN THE ABSENCE OF ANY FINDING AS TO INCORRECTNESS OF BOOKS OF ACCOUNT AND STOCK DETAILS, IT IS INCORRECT ON THE P ART OF THE AO TO COME TO THE 4 ITA NO.2301/MUM/2016 CONCLUSION THAT PURCHASES ARE BOGUS IN NATURE MEREL Y ON THE BASIS OF THIRD PARTY STATEMENT. THE CIT(A), AFTER CONSIDERING REL EVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE GUJARAT HIGH COURT IN CIT VS SI MIT P SHETH (2013) 38 TAXMAN.COM 385 (GUJ) AND THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS VIJAY PROTEINS LTD 58 ITD 428 (AHD) DIRECTED THE AO TO ESTIMATE NET PROFIT OF 15% ON TOTAL ALLEGED BOGUS P URCHASES. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US . 4. WE HAVE HEARD THE LD.DR AND PERUSED MATERIAL AVAILA BLE ON RECORD. THE AO MADE ADDITION TOWARDS PURCHASES ON THE BASIS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT WHICH INFORME D THAT THE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ANY BUSINESS ACTIVITY. ACCORDING TO THE AO, NOTICES ISSUED U/AS 133(6) WER E RETURNED UNSERVED WITH REMARK NOT KNOWN OR UNCLAIMED. THEREFORE, THE AO OPINED THAT THOUGH THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES TO JUS TIFY PURCHASES FROM ABOVE PARTIES, FAILED TO PROVE THE GENUINENESS OF PURCHAS ES IN THE BACKDROP OF CLEAR FINDINGS OF MAHARASHTRA SALES-TAX DEPARTMENT THAT T HE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. IT IS THE CONTENT ION OF THE ASSESSEE THAT PURCHASES FROM ABOVE PARTIES ARE GENUINE IN NATURE AS ITS PURCHASES ARE SUPPORTED BY VALID PURCHASE BILLS, DELIVERY CHALLAN S AND PAYMENT FOR SUCH 5 ITA NO.2301/MUM/2016 PURCHASES HAS BEEN MADE THROUGH PROPER BANKING CHAN NELS. THE ASSESSEE FURTHER CONTENDED THAT ADDITIONS CANNOT BE MADE TOW ARDS PURCHASES MERELY ON THE BASIS OF THIRD PARTY INFORMATION IGNORING TH E EVIDENCES FILED TO JUSTIFY PURCHASES. THE ASSESSEE FURTHER CONTENDED BEFORE T HE LOWER AUTHORITIES THAT THE AO NEITHER POINTED OUT ANY ERROR OR DISCREPANCY IN THE BOOKS OF ACCOUNT NOR DID MAKE OUT ANY CASE OF SALES MADE OUTSIDE THE BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY FINDING AS TO INCORRECTNESS OF BOOKS OF ACCOUNT, ADDITION CANNOT BE MADE TOWARDS BOGUS PURCHASES. 5. HAVING HEARD, WE FIND FORCE IN THE CONTENTION OF TH E ASSESSEE FOR THE REASONS THAT THE AO HAS MADE ADDITIONS ONLY ON THE BASIS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT, IGN ORING THE EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF PURCHASE BILLS, DELI VERY CHALLANS AND PAYMENT PROOF. THE ASSESSEE, ON THE OTHER HAND, FILED CERT AIN EVIDENCES IN THE FORM OF PURCHASE BILLS AND PAYMENT PROOF TO PROVE THE GENUI NENESS OF PURCHASES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ADDIT ION CANNOT BE MADE TOWARDS ALLEGED BOGUS PURCHASES ONLY ON THE BASIS O F INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT. AT THE SAME TIME, IT IS ALSO AN UNDISPUTED FACT THAT THE NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED WITH REMARK, NOT KNOWN OR UNCLAIMED. THE ASSES SEE HAS FAILED TO FURNISH CORRECT ADDRESSES OF THE PARTIES. UNDER THESE CIRC UMSTANCES, IT IS VERY DIFFICULT 6 ITA NO.2301/MUM/2016 TO ACCEPT THAT THE PURCHASES FROM THOSE PARTIES ARE EXPLAINED TO THE SATISFACTION OF THE AO. UNDER THESE FACTS AND CIRC UMSTANCES WHAT NEEDS TO BE TAXED IS ONLY THE PROFIT ELEMENT IN SUCH PURCHASES BUT NOT THE TOTAL PURCHASES MADE FROM ALLEGED BOGUS PARTIES. THIS VIEW HAS BEE N FURTHER SUPPORTED BY THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF VIJAY PROTIENS LTD (SUPRA) WHEREIN IT WAS HELD THAT ONLY PROFIT ELEMENT EMBEDD ED IN BOGUS PURCHASES NEEDS TO BE TAXED. WE FURTHER NOTICE THAT THE HON BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT LTD 355 ITR 290 (GUJ) OBSERVED THAT WHETHER PURCHASES THEMSELVES WERE TO BE TAXED OR WH ETHER PARTIES FROM WHOM SUCH PURCHASES MADE WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT AND THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD CONCLUDED THAT THE ASSESSEE DID PURCHASE CLOTH AND SOLD GOODS, THE ENT IRE PURCHASE WOULD NOT BE SUBJECTED TO TAX. IN YET ANOTHER CASE, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SUPRA) HAS HELD THAT NO UNIF ORM YARDSTICK CAN BE APPLIED FOR ESTIMATION OF NET PROFIT WHICH IS DEPENDENT UPO N FACTS AND CIRCUMSTANCES OF EACH CASE. THE CO-ORDINATE BENCH OF ITAT, MUMBA I IN SEVERAL CASES HAS TAKEN A VIEW THAT ONLY THE PROFIT ELEMENT EMBEDDED IN BOGUS PURCHASES NEEDS TO BE TAXED. ACCORDINGLY, ESTIMATED NET PROFIT OF 12.5% ON BOGUS PURCHASES. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BEING CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE B ENCH, WE ARE OF THE VIEW 7 ITA NO.2301/MUM/2016 THAT ONLY PROFIT ELEMENT EMBEDDED IN PURCHASES NEED S TO BE TAXED. HENCE, WE DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON TO TAL PURCHASES MADE FROM THE ABOVE PARTIES. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON _____ OCTOBER , 2017. (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : OCTOBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI