BHAVIK JAYANT GANDHI, MUMBAI V. ITO WD. 25(1)(4) NOW ITO WD. 32(1)(3), MUMBAI

ITA 2312/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8436 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 21-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained expenditure
• Section: 69C; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH I,MUM BAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.2312/MUM/2016 FOR (ASSESSMENT YEAR : 2011-12 ) BHAVIK JANANT GANDHI D-11, KESHAVNIDHI APARTMENT, MULJI NAGAR NO.2, SAIBABA NAGAR, BORIVALI (W), MUMBAI-400092 PAN: AHZPG2588H VS. ITO WARD- 25(1)(4), MUMBAI, NOW ITO 32(1)(3) (AS RECONSTITUTED), (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI SAURABH KUMAR RAI (DR) DATE OF HEARING : 21.02.2017 DATE OF PRONOUNCEMENT : 21.02.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THIS APPEAL BY ASSESSEE U/S 253 OF THE INCOME TAX A CT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-44, MUMBAI DATED 29.01.2016 FOR ASSESSMENT YEAR (AY) 2011-12. THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL: 1. THE LD. C.I.T. APPEALS ERRED IN FACTS AND IN LAW IN PARTLY ALLOWING APPEAL OF THE APPELLANT BY MAKING AN ADDITION OF RS. 14,77,76 0/- BEING @ 8% OF THE ALLEGED BOGUS PURCHASE AMOUNTING TO RS. 1,84,72,002 /-, WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT ON LEGAL GROU NDS AS WELL AS ON MERITS, WITHOUT ANY BASE. 2. THE ABOVE GROUND OF APPEAL IS WITHOUT PREJUDICE TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, DELETE OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS PROPRIETOR OF M/S RUDRAKSHA ORGANICS, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CHEMICALS. THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 25.09.2011 DECLARING TOTAL INCOME AT RS. 62,56,50/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 25.03.2014. WHILE 2 ITA NO. 2312/M/2016 BHAVIK JA NANT GANDHI. FRAMING ASSESSMENT THE ASSESSING OFFICER (AO) MADE THE DISALLOWANCE OF RS.1,84,72,002/- U/S 69C OF THE ACT HOLDING THAT AS SESSEE MADE THE PURCHASES FROM HAWALA/BOGUS/SUSPICIOUS DEALER. ON APPEAL BEFORE TH E LD. CIT(A), THE DISALLOWANCE WAS RESTRICTED TO 8% OF THE AMOUNT OF BOGUS PURCHAS ES. ACCORDINGLY, THE ADDITIONS WAS WORK OUT AT RS. 14,77,760/-. FURTHER AGGRIEVE D BY THE ORDER OF LD. CIT(A), THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 3. NONE APPEARED ON BEHALF OF ASSESSEE WHEN CASE CAME UP FOR HEARING TODAY. THE PERUSAL OF RECORD SHOWS THAT NOTICE SENT TO ASSESSE E AT THE ADDRESS PROVIDED ON FORM 36, THROUGH RPAD RETURN BACK WITH THE ENDORSEMENT O F POSTAL AUTHORITY I.P.. DESPITE MAKING REPEATED CALLS AND WAITING FOR SUFFI CIENT TIME, WE LEFT NO OPTION BUT TO HEAR THE LD DR FOR REVENUE AND TO PROCEED FURTHER O N THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE LD. DR FOR THE REVENUE SUPPORTED THE OR DER OF LD. CIT(A) AND WOULD ARGUE THAT DURING THE FINANCIAL YEAR (FY) RELATED T O THE AY UNDER CONSIDERATION, THE ASSESSEE MADE THE PURCHASES FROM DEALERS WHO WERE D ECLARED AS HAWALA DEALER BY SALE-TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. THE AO ISSUED NOTICE TO ALL PARTIES U/S 133(6) OF THE ACT. THE NOTICES SENT TO PARTIES ARE RETURNED BACK UNSERVED. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES FOR V ERIFICATION AND EXPLAINED AS TO WHY THE PURCHASES SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE. THE ASSESSEE FAILED TO PRODUCE THE PARTIES, THUS, THE AO MADE THE DISALLOW ANCE OF AGGREGATE OF THE TOTAL PURCHASES FROM ALL 10 PARTIES. HOWEVER, ON APPEAL B EFORE THE LD. CIT(A) THE DISALLOWANCE WAS RESTRICTED TO 8% OF THE IMPUGNED PURCHASED ON THE BASIS OF GROSS PROFIT NET PROFIT RATIO OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR F OR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTICED THAT DURING THE RELEVANT FY, THE ASSESSEE MADE THE PURCHASES FROM 10 PARTIES. THE DE TAILS OF WHICH ALONG WITH THE COST OF PURCHASES ARE MENTIONED BY AO IN PARA-3 OF HIS O RDER. THE AO NOTICED THAT ASSESSEE MADE THE PURCHASES FROM THE PARTIES WHO WE RE DECLARED AS HAWALA DEALERS BY SALE-TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PURCHASES SHOULD NOT BE TREAT ED AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. THE ASSESSEE FILED HIS REPLY BEFOR E THE AO AND CONTENDED THAT ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUE AND THE TRANSACTION ENTERED WITH THOSE PARTIES ARE GENUINE ONE. THE CONTENTION OF AS SESSEE WAS NOT ACCEPTED BY AO. 3 ITA NO. 2312/M/2016 BHAVIK JA NANT GANDHI. THE AO MADE THE DISALLOWANCE OF AGGREGATE OF ENTIR E PURCHASES. HOWEVER, DURING THE FIRST APPELLATE PROCEEDING, THE LD. CIT(A) OBSE RVED THAT WHEN THE AO HAS NOT DOUBTED THE SALES, THERE IS NO QUESTION TO DOUBT TH E PURCHASES AND THE ADDITION SHOULD HAVE BEEN MADE ONLY TO THE EXTENT OF GROSS PROFIT, THE ASSESSEE HAS SHOWN THE GP RATE OF 1.87 ONLY. THE LD. CIT(A) FURTHER OBSERVED THAT ASSESSEE HAS NOT FURNISHED THE BOOKS OF ACCOUNT, NOR ANY OTHER DOCUMENTS DURING TH E ASSESSMENT PROCEEDING TO SUBSTANTIATE HIS CONTENTION ABOUT THE GENUINENESS O F THE TRANSACTION. THUS, THE VERACITY OF ACCOUNTS REMAINED DOUBTFUL. AND AFTER A PPLYING THE ENTIRE PURCHASES AS BOGUS. THE LD. CIT(A) WHILE EXAMINING THE PURCHASES FOUND THAT IF THE ENTIRE PURCHASES IS TREATED AS BOGUS THE GP OF ASSESSEE SH OOT UP TO 17.4% AND NP RATIO SHOOT UP TO 16.11%. THE LD CIT(A) CONCLUDED THAT BOTH TH E SITUATION SEEMS TO BE EXTREME. THUS, CONSIDERING THE IMPUGNED AMOUNT OF PURCHASES, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE @ 8% OF THE IMPUGNED PURCHASES. ACCORD INGLY, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE/ADDITION OF RS. 14,77,76 0/- ONLY OUT OF TOTAL IMPUGNED PURCHASES OF RS.1,84,72,002/-. RECENTLY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HARIRAM BHAMBANI IN ITA NO. 313/MUM/2013 DATED 04.0 3.2013 HELD THAT REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SALES CONSIDERATIO N TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALE CONSIDERA TION ALONE CAN BE SUBJECT TO TAX. WE ARE ALSO OF THE OPINION THAT UNDER THE INCOME-TAX A CT, ONLY THE REAL INCOME CAN BE TAXED BY THE REVENUE. EVEN IN CASE, THE TRANSACTION IS NOT VERIFIABLE, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION . CONSIDERING THE ENTIRETY OF THE FACTS BEFORE US, WE FIND THAT THE O RDER PASSED BY LD. CIT(A) WHILE RESTRICTING THE DISALLOWANCE TO 8% OF THE TOTAL IMP UGNED PURCHASES, IS QUITE REASONABLE WHICH WE AFFIRMED. IN THE RESULT, APPEAL OF T HE ASSESSEE IS DISMISSED. NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON THIS FEB RUARY, 2017. SD/- SD/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 21/02/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 4 ITA NO. 2312/M/2016 BHAVIK JA NANT GANDHI. BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/