SHRI PRAVIN FUTARMAL JAIN, MUMBAI V. INCOME TAX OFFICER 18(2) (5), MUMBAI

ITA 250/MUM/2022

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0510 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC-1
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts; Search and seizure; Tangible material; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 147; 148; 133(6); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC-1” MUMBAI BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 250/MUM/2022 Assessment Year: 2009-10 Shri Pravin Futarmal Jain, Office No. 6, Jewel Co-op. Society Ltd., 3 rd floor, 44/46, Dhanji Street, Mumbai-400 003 Vs. Income Tax Officer, 18(2)(5), Earnest House, NCPA Marg, Nariman Point, Mumbai-400021. PAN No. AACPJ 5627 L Appellant Respondent Assessee by : Mr. Vimal Punmiya, AR Revenue by : Mr. Kiran P. Unavekar, DR Date of Hearing : 31/05/2022 Date of pronouncement : 31/05/2022 ORDER PER OM PRAKASH KANT, AM This appeal has been preferred by the assessee against the order dated 17.12.2019 passed by the Ld. Commissioner of Income- Tax (Appeals)-29, Mumbai [in short ‘the Ld. CIT(A)’], for assessment year 2008-09, raising following grounds: Shri Pravin Futarmal Jain ITA No. 250/M/2022 2 1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeal) erred in a. arriving at the conclusion that purchases made of Rs. 10908202/- from M/s Lahree Impex are non-genuine b. confirming estimation of profit element @ 12.5% on alleged non genuine purchases of Rs.10908202/- which is over and above the gross profit declared @2.32% in books of accounts. c. confirming addition of Rs. 1363525/- on above basis made by the Assessing Officer to the total income of the appellant. d. fail to appreciate that appellant is engaged in the business of dealing in gold ornaments where earning of gross profit rate of 12.50% is impossible. e. failed to appreciate that proprietor of M/s Lahari Impex, Mr. Indermal Kasturchandji expired on 27.12.2010, therefore appellant could not produce him before the Assessing Officer. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income tax (Appeals) erred in confirming rejection of books of accounts of the appellant by invoking provisions of section 145(3) of the Act. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in and failed to appreciate that a) Proceeding initiated under section 147 /148 of the Act is on the basis of reason to suspect and not on reason to believe. b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 148 of the Act c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is without jurisdiction, bad in law and contrary to the provisions of the Act and liable to be cancelled/ annulled Shri Pravin Futarmal Jain ITA No. 250/M/2022 3 4. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 144 rs 147 of the Act by the learned Assessing Officer which is without jurisdiction, illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant, without providing cross examination of persons whose statements are relied upon, is liable to be annulled. The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act. 2. Briefly stated, the facts of the case are that the assessee was engaged in the business of trading and manufacturing of jewelers, ornaments and gold bars in the name of proprietary concern namely M/s Shree Ambika Ornaments. For the year under consideration, the assessee filed return of income on 22.09.2009 declaring total income of ₹33,19,501/-. In the case of the assessee an information was received from the DGIT (Inv.) that assessee had obtained certain accommodation entries of bogus purchases from the “hawala dealers” identified by the Sales Tax Department, Government of Maharashtra. As per information, the assessee had Shri Pravin Futarmal Jain ITA No. 250/M/2022 4 taken accommodation entry for purchase of ₹1,09,08,202/- from the entry provider namely “M/s Lahree Impex”. During the course of reassessment proceedings, the Assessing Officer issued notice u/s 133(6) of the Act to M/s Lahree Impex, however notices were returned by the postal authorities with the remark ‘not known’. The Assessing Officer asked the assessee to produce the above party in view of non-compliance of notice u/s 133(6) of the Act. The Assessing Officer asked the assessee also to provide evidence in support of purchase from M/s Lahree Impex. In absence of any information provided, the Ld. Assessing Officer disallowed 12.5% of the total amount of ₹1,09,08,202/- which works out to ₹13,63,525/- as additional GP on non-genuine purchases. The Ld. CIT(A) also uphold the addition made by the Ld. Assessing Officer observing as under : “4.1.4. Conclusion on case laws: The net conclusion that can be arrived at from the above discussion is that where the sales and purchases are verifiable and proven e.g. to or Shri Pravin Futarmal Jain ITA No. 250/M/2022 5 from government bodies or agencies etc no addition may be made. If however, the purchases are bogus but the direct sales are proved, the assumptions are that the purchases were made from unknown parties and the AO can apply a profit rate to determine the liability of the appellant. It is also seen that putting an onus on the AO to trace the money trail or verify the withdrawals from the banks etc may give more pointers but it is not sufficient by itself and the ITAT has not accepted such an argument in the case of Shri Ganpatraj A.Sanghavi (supra). If the bogus purchases are unproved and are declared consumed by appellant itself in its trading, manufacturing or non-trading activities, the entire addition can be made as it only goes to inflate the expenses of the appellant. (refer M/s. Shoreline Hotel Pvt. Ltd vs. CIT Central-1 in ITA No.964/M/2015 dated 19.06.2015). In view of the above, it is an admitted fact that Sales Tax. 4.1.5 Department has conducted search and seizure operation and has established large number of companies/firms/partnership concerns as hawala dealers who are engaged in accommodation entries without actually supplying the goods. The appellant is one of the beneficiary and has received such accommodation bills from the party (the hawala operators) totaling to Rs.1,09,08.202/-. The assessee was asked to provide the details of the purchase from the party named Lahree Impex. The appellant filed a few details such as copy of ledger account, bank statement and statement showing corresponding sales regarding transaction from alleged parties. The Assessing Officer made an independent enquiry by issuing of notice u/s 133(6) of the Income Tax Act, 1961. The notice remained unserved and returned with remark "Not known". The assessee could not file the vital documents such as delivery challans, transport receipts, goods inward register etc. Shri Pravin Futarmal Jain ITA No. 250/M/2022 6 So the specific details required to establish the genuineness of purchases could not be submitted before the A.O. However, it is also a fact that the A.O. has not questioned the total sale component and if there is a sale, there should be purchase. The appellant being a trading concern, has indulged in using such accommodation entry. As evident from catena of judgments on bogus purchases, only the benefit derived by using such accommodation entries has to be brought to tax. The advantages from using such bogus bills are in the form of saving VAT, saving of transportation charges and various taxes etc. The AO has made addition of 12.5% of bogus purchases. In my opinion, the ratio of the judgment of Hon'ble Gujarat High Court in the case of Simit P. Seth 356 ITR 461 (Guj.)is applicable to the facts and circumstances of the appellant's case. Here, the Hon'ble Court has held that disallowance of 12.5% of the purchases from such hawala dealers will be justified based on the premise that the appellant have derived benefit to this extent based on his nature of business. Thus, the disallowance of purchase is upheld in principle as the appellant is a trader not manufacturer. The A.O. has correctly restricted the disallowance to the extent of 12.5% of purchase from suspicious dealers. The grounds of appeal are, therefore Dismissed.” 3. Before us, the Ld. counsel of the assessee submitted that due to death of the Karta of HUF, who was running M/s Lahree Impex, no compliance of the 133(6) notice issued by the Assessing Officer could be made by the said party and said party also could not be produced before the Assessing Officer due to some reason. Shri Pravin Futarmal Jain ITA No. 250/M/2022 7 According to the assessee, the Ld. Assessing Officer has not doubted the sales made by the assessee, corresponding to purchase from M/s Lahree Impex, therefore, any addition made on the basis of the information in the Sales Tax Department is not justified. 4. On the other hand, the Ld. DR relied on the order of lower authorities. 5. We have heard rival submissions of the parties and perused the relevant material on issue-in-dispute. We find that in the case, the dispute is only in respect of percentage of disallowance out of purchases shown to have been made from M/s Lahree Impex. The Ld. CIT(A) has sustained disallowance at the rate of 12.5% of relevant purchases keeping in view the VAT benefit which the assessee would have obtained on the purchases made from Lahree Impex. Whereas according to assessee, VAT rate in case of gold ornaments and gold bars is in the range of 1 to 2 percent and therefore only addition should have been restricted in the case of Shri Pravin Futarmal Jain ITA No. 250/M/2022 8 the assessee to the extent of 1 or 2% of purchases under reference. We are of the opinion that in case of the cash purchases, the assessee becomes eligible for cash discount also and therefore gross profit benefit on account of purchases made from the hawala dealer in the case of the assessee shall be appropriate to restrict to 5% of the purchases from M/s Lahree Impex. Accordingly, we restrict the addition in the case of the assessee @ 5% of the amount of ₹1,09,08,202/- which works out to ₹ 5,45,410/- and the balance addition is deleted. The ground No. 1 is partly allowed. The other grounds were not pressed by the Ld. counsel of the assessee, therefore, same are dismissed as infructuous. 6. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court. Sd/- Sd/- (KULDIP SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 31/05/2022 Rahul Sharma, Sr. P.S. Shri Pravin Futarmal Jain ITA No. 250/M/2022 9 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// (Sr. Private Secretary) ITAT, Mumbai