SHRI. VIKRAM VARDHAN, Mumbai V. ITO 20(3)(5), Mumbai

ITA 2450/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3751 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY J SETHI
• Keywords: Bogus purchase; Recovery proceedings; Opportunity of being heard; Reasonable cause; Set aside
• Section: 143(3); 147

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) I.T.A. NO. 2450/MUM/2019 (ASSESSMENT YEAR 2009-10 ) SHRI VIKRAM D. VARDHAN 1401/1402, KINJAL HEIGHTS, B-WING, 363 WADIA STREET, TARDEO MUMBAI-400 034. PAN : ACFPV4456Q VS . ITO-20(3)(5) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SATISH MODI DEPARTMENT BY SHRI SANJAY J . SETHI DATE OF HEARING 25 . 01. 20 2 1 DATE OF PRONOUNCEMENT 01.03.2021 O R D E R THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE AS SESSEE IS AGGRIEVED THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [IN SH ORT LEARNED CIT(A)] HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT O F BOGUS PURCHASES, VIDE ORDER DATED 23.1.2018 PERTAINING TO ASSESSMENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL READ AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN THE LAW THE LD. CIT (A) - 48, MUMBAI HAS ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN MAKING ADDITION OF RS.3,74,4597- ON ADHOC BASIS @ 12.50% OF RS.29,95,687/- ON ACCOUNT OF BOGUS PURCHASER HENCE, THE APPELLANT PRAYS THAT THE SAID ADDITION OF RS. 3,74,459/- MAY KINDLY BE DELETED. 3. IT IS NOTED THAT THERE IS A DELAY OF 390 DAYS IN FILING THE APPEAL. THE CONDONATION PETITION REFERS TO FOLLOWING AFFIDAVIT BY THE PARTNER OF THE CHARTERED ACCOUNTANT FIRM THAT EX-PARTE ORDER OF LE ARNED CIT(A) WAS ADDRESSED TO OLD ADDRESS OF THE ASSESSEE AND THEY BECAME AWAR E OF THE ORDER ONLY AFTER RECOVERY PROCEEDINGS STARTED. SHRI VIKRAM D. VARDHAN 2 4. UPON HEARING BOTH THE PARTIES AND CONSIDERING TH E REASONABLE CAUSE I CONDONE THE DELAY. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL CLAIMED TO BE ENGAGED IN THE BUSINESS OF DEALERS IN LAPTOP AND ITS ACCESSORIES. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILED ON 29 -09-2009 DECLARING TOTAL INCOME OF RS. 9,61,810/- AND THE RETURN WAS PROCESS ED U/S 143(1). THEREAFTER ON THE BASIS OF INFORMATION RECEIVED IN RESPECT OF HAWALA TRANSACTIONS, PROCEEDINGS WERE INITIATED U/S 147 OF THE ACT. THE ASSESSMENT U/S. 143(3) RWS 147 WAS COMPLETED BY THE ASSESSING OFFICER ON 13.03 .2009 DETERMINING INCOME AT RS.13,36,270/-. THE ASSESSING OFFICER OBS ERVED THAT THE APPELLANT HAD DEBITED PURCHASES OF RS.29,95,668/- FROM TWO P ARTIES CONSIDERED TO BE HAWALA DEALERS. ON THE BASIS OF INFORMATION RECEIVE D FROM THE SALES TAX DEPARTMENT (INVESTIGATION WING OF INCOME TAX DEPART MENT, MUMBAI) IT WAS FOUND THAT THE APPELLANT HAD OBTAINED BOGUS PURCHAS E BILLS TOTAL AMOUNTING TO RS. 29,95,668/- FROM SO CALLED HAWALA OPERA TORS. THE ASSESSING OFFICER ON GOING THROUGH THE SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE CONCLUDED THAT THE ASSESSEE FAILED TO PROVE WITH SUPPORTING D OCUMENTARY EVIDENCES THAT THE MATERIAL WAS ACTUALLY DELIVERED IN ITS PREMISES AND ALSO FAILED TO FILE EVIDENCES OF DELIVERIES TO ESTABLISH THAT THE MATER IAL WAS CONSUMED FOR BUSINESS ACTIVITIES. ALSO THE ASSESSEE FAILED TO FU RNISH THE CONFIRMATION FROM THE PARTY THAT IT HAD ACTUALLY SOLD AND DELIVERED M ATERIAL TO THE APPELLANT COMPANY AND HENCE, THE SUM IN RESPECT OF INVESTMENT MADE OUT OF UNACCOUNTED MONEY BY THE APPELLANT FOR PURCHASE OF MATERIALS FROM THE PARTY OF RS. 29,95,668/- WAS TREATED AS BOGUS PURCHASES A ND MADE AN ADHOC ADDITION OF RS. 3,74,459/- BEING 12.5% OF THE SAID EXPENSES AND ADDED TO THE TOTAL INCOME. 6. UPON ASSESSEES APPEAL LEARNED CIT(A) CONFIRMED THE SAME. 7. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. SHRI VIKRAM D. VARDHAN 3 8. UPON CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFE RENCES HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PUR CHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT AC TUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTI ONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETIT ION NO 2860, ORDER DATED 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGU S WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THA T ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THR OUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMEN T OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICA TION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PU RCHASES BY THE ASSESSEE, LEARNED COUNSEL PLEADED THAT AS HELD BY H ONOURABLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF PRINC IPLE COMMISSIONER OF INCOME TAX VERSUS M. HAJI ADAM & CO (ITA NUMBER 100 4 OF 2016 DATED 11/2/2019 IN PARAGRAPH 8 THERE OFF) THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGIN G THE GROSS PROFIT RATE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURCHASES. 9. I RESPECTFULLY FOLLOWING THE AFORESAID JUDGEMENT OF THE HONOURABLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF THE ASSES SING OFFICER WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS PURCH ASES BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PURCHASES AT THE SAME RAT E AS THAT OF THE OTHER GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHO ULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. SHRI VIKRAM D. VARDHAN 4 10. IN THE RESULT ASSESSEE'S APPEAL IS PARTLY ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 1.3.2021. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI; DATED : 01/03/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI