VBC Jewellery, CHENNAI V. ACIT Non Corporate Circle 2, CHENNAI

ITA 2303/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2698 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN
• Assessee Lawyers: N ARJUN RAJ C A SHRI S SRIDHAR
• Keywords: Bogus purchase; Unexplained expenditure; Search and seizure; Accommodation entries
• Section: 271(1)(c)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2306/CHNY/2018 [ [ / ASSESSMENT YEAR: 2009-10) M/S.VBC JEWELLERS, 76, G N CHETTY ROAD, T. NAGAR, CHENNAI 600 017. VS THE ACIT, NON-CORPORATE CIRCLE 2, CHENNAI 34. PAN: AAFFV2851D ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.2302 & 2303/CHNY/2018 [ [ / ASSESSMENT YEARS: 2009-10 & 2011-12) M/S. VBC JEWELLERY, 78, G N CHETTY ROAD, T. NAGAR, CHENNAI 600 017. VS THE ACIT, NON-CORPORATE CIRCLE 2, CHENNAI 34. PAN: AAAFV5601N ( /APPELLANT) ( /RESPONDENT) / APPELLANTS BY : SHRI N. ARJUN RAJ, CA FOR SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI B. SAGADEVAN, JCIT /DATE OF HEARING : 08.01.2019 /DATE OF PRONOUNCEMENT : 19.02.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEES VIZ., M/S. VBC JEWELLERS & M/S. VBC JEWELLERY ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI, 2 ITA NO.2302, 2303 & 2306/CHNY/2018 U/S.250(6) R.W.S. 271(1)(C) OF THE ACT DATED 31.05.2018 & 30.05.2018 IN ITA NO.40/2017-18/A.Y.2009-10/CIT(A)-2 FOR THE ASSESSMENT YEAR 2009-10 & ITA NO.39/2017-18/A.Y.2009- 10/CIT(A)-2 AND 41/2017-18/A.Y.2011-12/CIT(A)-2 FOR THE ASSESSMENT YEARS 2009-10 AND 2011-12 RESPECTIVELY. 2. THE ASSESSEES HAVE RAISED SEVERAL IDENTICAL GROUNDS IN ITS APPEALS HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE PENALTY LEVIED BY THE LD.AO BY INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT FOR AN AMOUNT OF RS.30,000/- IN THE CASE OF M/S. VBC JEWELLERS IN ITA NO.2306 /CHNY/2018 FOR THE ASSESSMENT YEAR 2009-10, RS. 2,00,000/- IN THE CASE OF M/S. VBC JEWELLERY IN ITA NO.2302/CHNY/2018 & 2303/CHNY/2018 FOR EACH OF THE ASSESSMENT YEARS 2009-10 AND 2011-12. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEES VIZ., VBC JEWELLERS & VBC JEWELLERY IS FIRMS ENGAGED IN JEWELLERY BUSINESS. M/S. VBC JEWELLERS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 30.09.2009 ADMITTING TOTAL INCOME OF 3 ITA NO.2302, 2303 & 2306/CHNY/2018 RS.53,47,740/-. M/S. VBC JEWELLERY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2009-10 & 2011-12 ON 30.09.2009 & 30.09.2011 ADMITTING TOTAL INCOME OF RS.56,72,740/- & RS.7,55,200/- RESPECTIVELY. A SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT WAS CONDUCTED ON 03.10.2014 ON BHANWARLAL JAIN GROUP AND IT WAS FOUND THAT CERTAIN ENTITIES WERE ACTUALLY MANAGED AND CONTROLLED BY BHANWARLAL JAIN GROUP IN ORDER TO PROVIDE ACCOMMODATION ENTRIES OF LOANS, ADVANCES AND BOGUS SALES TO VARIOUS PARTIES AGAINST WHICH COMMISSIONS WERE CHARGED. IT WAS ALSO REVEALED THAT BOTH THE ABOVE ASSESSEES HAD ALSO AVAILED SUCH ACCOMMODATION ENTRIES FROM BHANWARLAL JAIN GROUP. IT WAS FURTHER OBSERVED THAT M/S. VBC JEWELLERS HAD MADE BOGUS/UNVERIFIABLE DIAMOND PURCHASES FROM M/S. MARVIN ENTERPRISES AMOUNTING TO RS.2,72,320/- DURING THE ASSESSMENT YEAR 2009-10. THEREAFTER THE LD.AO ESTIMATED 25% OF THE UNVERIFIABLE PURCHASE AS THE INCOME OF THE ASSESSEE AMOUNTING TO RS.68,080/-. FURTHER THE LD.AO ESTIMATED AN AMOUNT OF RS.5,000/- TOWARDS COMMISSION PAID FOR SUCH ACCOMMODATION ENTRIES WHICH WAS DEDUCTED ON THE RETURN OF CASH BY THE ANGADIAS AND ADDED TO THE INCOME OF THE ASSESSEE BY TREATING THE SAME AS UNEXPLAINED EXPENDITURE U/S.69C OF THE ACT. 4 ITA NO.2302, 2303 & 2306/CHNY/2018 THUS ADDITION WAS MADE AGGREGATING TO RS.73,080/-. SIMILARLY IT WAS OBSERVED THAT M/S. VBC JEWELLERY HAD MADE BOGUS/UNVERIFIABLE DIAMOND PURCHASES FOR RS.19,58,551/- & RS.23,42,050/- FOR THE ASSESSMENT YEARS 2009-10 & 2011-12 RESPECTIVELY AND THEREAFTER THE LD.A.O ESTIMATED 25% OF THE UNVERIFIABLE PURCHASES AS THE INCOME OF THE ASSESSEE AMOUNTING TO RS.4,89,638/- AND RS.5,85,513/- RESPECTIVELY. SIMILAR ADDITION U/S.69C OF THE ACT WAS MADE IN THE HANDS OF M/S. VBC JEWELLERY FOR THE ASSESSMENT YEAR 2009-10 & 2011-12 FOR RS.10,000/- & RS.5,000/- RESPECTIVELY. THUS THE AGGREGATE ADDITION FOR THE ASSESSMENT YEAR 2009-10 & 2011-12 IN THE CASE OF M/S. VBC JEWELLERY STOOD AT RS.4,99,638/- & RS.5,90,513/- RESPECTIVELY. SUBSEQUENTLY THE LD.AO INVOKED THE PROVISIONS OF PENALTY U/S.271(1)(C) OF THE ACT WITH RESPECT TO THE ENTIRE ADDITIONS AND LEVIED PENALTY FOR RS.30,000/- IN THE HANDS OF M/S.VBC JEWELLERS FOR THE ASSESSMENT YEAR 2009-10 AND RS.2,00,000/- FOR EACH OF THE ASSESSMENT YEARS 2009-10 & 2011-12 IN THE CASE OF M/S. VBC JEWELLERY RESPECTIVELY. ON APPEAL THE LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY AGREEING WITH THE VIEW OF THE LD.AO. 5 ITA NO.2302, 2303 & 2306/CHNY/2018 4. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT IN THE CASE OF BOTH THE ASSESSEES FOR THE ASSESSMENT YEARS 2009-10 & 2011-12, THE TRIBUNAL HAS EXTENDED SUBSTANTIAL RELIEF VIDE ITS ORDER DATED 24.10.2018 IN ITA NOS.653, 654/CHNY/2017 & 655/CHNY/2017 WHICH THE LD.DR COULD NOT CONTROVERT. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. PURCHASES MADE BY THE ASSESSEES, FROM M/S. MOHIT ENTERPRISES, M/S. MAAN DIAMONDS, M/S.RAJAN DIAMONDS AND M/S. MARVIN ENTERPRISES WERE CONSIDERED AS BOGUS, BASED ON INVESTIGATION DONE BY THE DEPARTMENT ON A GROUP HEADED BY ONE SHRI. BHANWARLAL JAIN PURSUANT TO A SEARCH CONDUCTED IN THEIR PREMISES ON 03.10.2014. WHAT WE FIND IS THAT REVENUE HAD RELIED ON OATH STATEMENTS TAKEN FROM NUMBER OF PERSONS CONNECTED TO THE CONCERNS RUN BY SHRI. BHANWARLAL JAIN FOR COMING TO A CONCLUSION THAT THE CONCERNS RUN BY SHRI. BHANWARLAL JAIN AND FAMILY, WERE PROVIDING ACCOMMODATION ENTRIES IN THE NATURE OF BOGUS PURCHASES. WE ALSO FIND THAT THESE STATEMENTS AND THE INVESTIGATION REPORTS RELIED ON BY THE LD. ASSESSING OFFICER, WERE NEVER PUT TO THE ASSESSEES, DURING THE COURSE OF ASSESSMENT PROCEEDINGS. LD. ASSESSING OFFICER HAD RELIED ON SUCH STATEMENTS AND REPORTS FOR RESORTING TO A BEST OF JUDGMENT ASSESSMENT AND MADE AN ADDITION OF 25%, OF WHAT WAS CONSIDERED BY HIM AS BOGUS PURCHASES. IT IS NOT DISPUTED THAT ASSESSEES HAD PRODUCED INVOICES FROM THE CONCERNED VENDORS AND SAID INVOICES CARRIED TIN AS WELL AS GST DETAILS OF THE VENDORS. IT IS ALSO NOT DISPUTED THAT THE RECEIPT OF THE MATERIAL WERE PROPERLY RECORDED BY THE ASSESSEES IN THEIR STOCK REGISTERS. THE SALES EFFECTED BY THE ASSESSEES WAS NEVER DISBELIEVED. WHEN THE SALES ARE ACCEPTED, WE CANNOT SAY THAT THERE WERE NO CORRESPONDING PURCHASES. NEVERTHELESS, IT IS TRUE THAT ASSESSEE DESPITE CLAIMING THE PURCHASES TO HAVE BEEN EFFECTED THROUGH SOME INTERMEDIARIES, WERE UNABLE TO PRODUCE THE INTERMEDIARIES OR FILE CONFIRMATIONS FROM THEM. HENCE, WE CANNOT SAY THAT ASSESSEE HAD MADE ALL NECESSARY EFFORTS FOR PROVING THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE PARTIES MENTIONED IN THE TABLE ABOVE, BEYOND PREPONDERANCE OF PROBABILITY. A SIMILAR CASE, WHERE AN ADDITION WAS MADE DISBELIEVING PURCHASES, BASED ON SEARCH OPERATIONS CONDUCTED IN M/S. BHANWARLAL JAIN GROUP, HAD COME UP BEFORE THE MUMBAI BENCH OF THE 6 ITA NO.2302, 2303 & 2306/CHNY/2018 TRIBUNAL IN ITA NOS.3707 & 3761/MUM/2016, DATED 11.12.2017). WHAT WAS HELD BY THE MUMBAI BENCH AT PARAS 9 & 10 ARE REPRODUCED HEREUNDER:- 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD. AS REGARDS THE REOPENING, WE FIND THE COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED AN APPOSITE ORDER. THE REOPENING HAS BEEN DONE ON THE BASIS OF COGENT INFORMATION REGARDING THE ASSESSEE DEALING WITH HAWALA OPERATORS. THE CASE LAWS REFERRED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ARE GERMANE AND SUPPORT THE VALIDITY OF REOPENING IN THIS CASE. 10. AS REGARDS THE MERITS OF THE CASE, FACTS OF THE CASE INDICATE THAT THE ASSESSEE HAS ENGAGED INTO OBTAINING BOGUS PURCHASE BILLS. SINCE, SALES HAVE NOT BEEN DOUBTED; ENTIRE DISALLOWANCE OF PURCHASE IS NOT SUSTAINABLE IN LIGHT OF HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ ENTERPRISES. WE FURTHER NOTE THAT THE ASSESSING OFFICER HAS ALSO HIMSELF NOT DONE ANY INVESTIGATION AND ENQUIRY. THE ASSESSEE'S REQUEST FOR CROSS EXAMINATION HAS NOT BEEN ENTERTAINED BY THE ASSESSING OFFICER. IN THESE CIRCUMSTANCES, 6% DISALLOWANCE OF BOGUS PURCHASE SUSTAINED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS APPROPRIATE AND DOES NOT NEED ANY INTERFERENCE ON OUR PART. BOTH THE ID. COUNSEL ALSO FAIRLY AGREED TO THIS PROPOSITION . ASSESSEES HAVE ALSO SUBMITTED THAT ITS GROSS PROFIT INCLUDING THAT OF PURCHASES CONSIDERED BY THE LOWER AUTHORITIES AS BOGUS, CAME TO 8.91% TO 20.88% FOR THE IMPUGNED ASSESSMENT YEARS. EVEN IF WE ACCEPT THE CONTENTION OF THE REVENUE THAT 25% MARK UP WAS JUSTIFIED BASED ON THE JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF SANJAY OIL CAKE INDUSTRIES (SUPRA), WHAT COULD AT THE BEST BE ADDED IS ONLY THE SHORTFALL BETWEEN DECLARED GROSS PROFIT AND THE ESTIMATED GROSS PROFIT OF 25%, AND SUCH SHORTFALL FELL WITHIN THE RANGE OF 5 TO 6%. IN SUCH CIRCUMSTANCES, IN ORDER TO GIVE A QUIETUS TO THE MATTER, WE ARE INCLINED TO FOLLOW THE DECISION OF MUMBAI BENCH IN THE CASE OF M/S. RALF JEMS PVT. LTD (SUPRA). ADDITION THAT ARE TO BE MADE IS FIXED AT 6%, OF WHAT IS CONSIDERED AS VALUE OF THE ALLEGED BOGUS PURCHASES AND NOTHING MORE. WE DIRECT THE LD. ASSESSING OFFICER TO RECALCULATE THE ADDITION ACCORDINGLY. 11. VIZ--VIZ, ALLEGED COMMISSION, IN THE FIRST PLACE, ASSESSEES HAD NOT CLAIMED ANY COMMISSION PAYMENT. ESTIMATE OF RS.5,000/- PER BILL WAS BASED ON PURE SURMISES. SUCH ADDITIONS ARE THEREFORE DELETED. 7 ITA NO.2302, 2303 & 2306/CHNY/2018 4.1. THE LD.AR FURTHER ARGUED BY STATING THAT IN THE CASE OF THE ASSESSEE THE ENTIRE ADDITIONS WAS MADE BASED ON ESTIMATION WITH RESPECT TO BOGUS / UNEXPLAINED PURCHASES AND SUBSTANTIAL RELIEF WAS GRANTED. FURTHER IT WAS ARGUED, THE TRIBUNAL HAD MADE CATEGORICAL FINDING WITH RESPECT TO THE ADDITIONS MADE TOWARDS COMMISSION WHICH WAS BASED ON PURE PRESUMPTIONS AND THEREFORE THE TRIBUNAL HAD DELETED THE SAME. IN THIS SITUATION, IT WAS PLEADED THAT LEVY OF PENALTY IS ERRONEOUS AND THEREFORE THE SAME MAY BE DELETED. THE LD.DR COULD NOT SUCCESSFULLY OPPOSE TO THE SUBMISSION OF THE LD.AR, HOWEVER HE VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE LD.REVENUE AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. WITH RESPECT TO THE ADDITIONS MADE TOWARDS COMMISSION, THE TRIBUNAL VIDE ITS ORDER DATED 24.10.2018 HAS DELETED THE SAME AND THEREFORE THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT ON THE SAME HAS NO LEGS TO STAND. FURTHER FROM THE FACTS OF THE CASE IT IS EVIDENT THAT THE ADDITION MADE TOWARDS BOGUS / UNVERIFIED PURCHASES ARE ON ESTIMATE BASIS AND THE TRIBUNAL HAS ALSO GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE VIDE 8 ITA NO.2302, 2303 & 2306/CHNY/2018 ITS ORDER DATED 24.10.2018. IN THE CASE CIT VS. K. MEENAKSHI KUTTY REPORTED IN 258 ITR 494, THE HONBLE JURISDICTIONAL MADRAS HIGH COURT HAS CATEGORICALLY HELD THAT PENALTY CANNOT BE LEVIED WHERE ADDITIONS ARE MADE ON ESTIMATE BASIS. SIMILAR VIEW WAS EXPRESSED IN THE DECISION OF THE HONBLE JURISDICTIONAL MADHYA PRADESH HIGH COURT IN THE CASE CIT VS. SHIVNARAYAN JAMNALAL & CO. REPORTED IN 232 ITR 311, THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE CIT VS. DHILLON RICE MILLS REPORTED IN 256 ITR 447 HAD ALSO HELD THAT PENALTY CANNOT BE LEVIED WHERE ADDITION IS MADE ON ESTIMATE BASIS. THE RATIO LAID DOWN IN THE DECISIONS OF THE HONBLE HIGHER JUDICIARY CITED SUPRA ARE APPLICABLE TO THE CASE OF THE ASSESSEE ALSO BECAUSE IN THE CASE OF THE ASSESSEE THE ADDITIONS ARE MADE ON ESTIMATE BASIS. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURTS CITED SUPRA WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEES, PENAL PROVISIONS OF SECTION 271(1)(C) OF THE ACT, CANNOT BE INVOKED. ACCORDINGLY WE HEREBY DIRECT THE LD.AO TO DELETE THE PENALTY LEVIED IN THE HANDS OF BOTH THE ASSESSEES BY INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEARS 2009-10 & 2011-12. 9 ITA NO.2302, 2303 & 2306/CHNY/2018 6. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED ON THE 19 TH FEBRUARY, 2019 AT CHENNAI. SD/- SD/- ( ) (DUVVURU R.L REDDY) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER /CHENNAI, /DATED 19 TH FEBRUARY, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. [ /GF