ITO 19(2)(5), MUMBAI V. PUSHPAK METAL INDUSTRIES, MUMBAI

ITA 2508/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9181 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMLATHA
• Keywords: Bogus purchase; Accommodation entries
• Section: 132

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 2508/MUM/2017 ( / ASSESSMENT YEAR: 2011 - 12 ) ITO - 19(2)(5), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI - 400 007 / VS. M/S. PUSHPAK METAL INDUSTRIES OFFICE NO. 13, 2 ND FLOOR, 16 KHATRI BLDG., 2 ND CARPENTER STREET CP TANK, MUMBAI - 400 004 ./ ./ P AN/GIR NO. AALFP 8826 F ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI /SMT. N. HEMLATHA / RESPONDENT BY : NONE / DATE OF HEARING : 09.10.2017 / D ATE OF PRONOUNCEMENT : 10 .10.2017 / O R D E R PER SHAMIM YAHYA , A. M.: THIS IS AN A PPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 29 , MUMBAI (CIT(A) FOR SHORT) DATED 19.01.2017 , PERTAINING TO THE AS SESSMENT YEAR (A.Y.) 2011 - 12. 2. IN THIS APPEAL, THE R EVENUE IS A G GRIEVED THAT THE L D. CIT(A) HAS NOT SUSTAINED 100% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. THE GROUNDS OF APPEAL READ AS UNDER: - 2 ITA NO. 2508/MUM/2017 (A.Y. 2011 - 12) ITO VS. M/S. PUSHPAK METAL INDUSTRIES 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, WHETHER THE LD. CIT (A) WAS JUSTIFIED IN SUSTAINING ONLY AN ADDITION @12.5% PROFIT RATE ON TOTAL PURCHASES OF RS.43,88,326/ - MADE FROM 7 PARTIES OF A GROUP CONCERN OF M/S. BHANWARLAL GROUP OF COMPANIES, WHO WERE IN THE BUSINESS OF PROVIDING ACCOMMODATI ON ENTRIES AS ESTABLISHED BY THE INVESTIGATING WING CONSEQUENT TO SEARCH ACTION U/S 132 OF THE IT. ACT, 1961?' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN SUSTAINING ONLY AN ADDITION @ 12.5% PROFIT RA TE ON TOTAL PURCHASES OF RS. 43,88,326/ - MADE FROM 7 PARTIES AS THE ASSESSEE FAILED TO SUBSTANTIATE THE SAID PURCHASES BEFORE ASSESSING OFFICER?' 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C1T(A) ON THE ABOVE GROUNDS BE SET - ASIDE AND THAT OF THE AO BE RESTORED. 4. THE APPELLANT CRAVES LEAVE, ADD, AMEND, ALTER OR VARY ANY OF THE GROUNDS OF APPEAL AT THE TIME AND / OR BEFORE THE HEARING OF THE APPEAL. 3. THE ASSESSING OFFICER (A.O.) IN THIS CASE HAS MADE 100% ADDITI ON O N ACCOUNT OF BOGUS PURCHASE AMO UNTING TO RS.43,88,326/ - FROM 7 PARTIES. 4. BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE FIRM FILED IT S RE TURN OF INCOME F OR THE A Y 2 011 - 1 2 ON 27.09.2011 DECLARING A TOTAL INCOME OF RS.49,413/ - . THE RETURN WAS PROCESSED U/S.143(1). SUBSEQUENTLY, TH E AO RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI WHO IN TURN RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT ABOUT SOME HAWALA ENTRY PROVIDERS ON THE BASIS OF WHICH THE CASE WAS REOPENED U/S.147. THE INFORMATION WAS THAT THE SALES TAX DEPARTMENT HA S EXERCISED DUE DILIGENCE WHICH REVEALED THAT THE ASSESSEE IS INVOLVED IN TAKING ACCOMMODATION ENTRIES OF BOGUS PURCHASES FROM 7 PARTIES AMOUNTING TO RS.43,88,326 / - . THE DETAILS OF THE PARTIES ARE AS UNDER : - SR. NO. NAME OF THE HAWALA DEALER AMOUNT (RS.) 1. ATLAS INTERNATIONAL(I) 6,37,591/ - 2. PREMIER ENTERPRISES 1,64,182/ - 3. UNICORN ENTERPRISE 4,94,120 / - 4. SATYANARAYAN STEEL & ENGG.CO. 2,83,329/ - 5. BAJRANGI STEEL & METAL P. LTD. 10,82,467 / - 6. REALITY SALES INDIA P. LTD. 4,63,386/ - 3 ITA NO. 2508/MUM/2017 (A.Y. 2011 - 12) ITO VS. M/S. PUSHPAK METAL INDUSTRIES 7. STAI NLESS IMPEX P. LTD.' 12,63,251 / - TOTAL 43,88,326 / - THE SALES TAX DEPARTMENT HAS CLASSIFIED THESE PARTIES AS HAWALA DEALERS. IT WAS EVIDENT FROM THE REPORT OF THE SALES TAX DEPARTMENT AND STATEMENT RECORDED THAT PURCHASES SHOWN BY THE ASSESSEE FROM THES E PARTIES ARE BOGUS AND NOTHING BUT ACCOMMODATION ENTRIES TO INFLATE PURCHASES TO REDUCE TAXABLE PROFITS/INCOME 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO IN ORDER TO VERIFY THE GENUINENESS OF THE PURCHASES MADE BY THE ASSESSEE, ISSUED NOTICE S U/S.133(6) TO THE ABOVE MENTIONED PARTIES BY SPEED POST BUT THE SAME COULD NOT BE SERVED. THE ASSESSEE ALSO FAILED TO SUBSTANTIATE THE PURCHASES MADE FROM THE ABOVE MENTIONED HAWALA DEALERS. THUS THE AO HELD THAT THE ABOVE PURCHASES MADE FROM THE ALLEGED HAWALA DEALERS ARE BOGUS AND ADDED THE ENTIRE AMOUNT OF RS.43.88.326/ - TO THE TOTAL INCOME OF THE ASSESSEE. 6 . UP ON ASSESSEE'S APPEAL , THE LD. C IT ( A ) HAS NOTED THAT THE SALES HAS NOT BEEN DOUBTED. ACCORDINGLY , PLACING RELIANCE UPON SEVERAL CASE LAWS AND UPON THE FACTS OF THE CASE , HE SUSTAINED 12.5% DISALLOWANCE OU T OF THE BOGUS PURCHASES. THE LD. C IT ( A ) HELD AS UNDER; 3.3.2. THE HON'BLE ITAT, AHMEDABAD C' BENCH IN THE CASE OF VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 HELD THAT IN SIMILAR CIRCUMSTANCES, 2 5% OF THE PURCHASE PRICE ACCOUNTED THROUGH FICTITIOUS INVOICES HAS TO BE DISALLOWED. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OIL CAKES V/S CIT 316 ITR 0274 DEALT WITH SIMILAR CASE WHERE SOME OF THE ALLEGED SUPPLIERS WHO HAD ISSUED BILLS TO THE ASSESSEE WERE NOT GENUINE AS THEY WERE NOT TRACEABLE. THE GOODS MUST HAVE BEEN RECEIVED FROM OTHER PARTIES. THE LIKELIHOOD OF THE PURCHASE PRICE OF THESE ALLEGED PURCHASES BEING INFLATED COULD NOT BE RULED OUT AND THEREFORE THE HON'BLE HIGH COURT HAS UPHELD THE DECISION OF CIT(A) AND THE ITAT DISALLOWING 25% OF THE PAYMENTS MADE TO SUCH PARTIES. THE HON'BL E HIGH COURT OF GUJARAT IN THE CA SE OF CIT VS. SIMIT P. SHETH 356 ITR 0451 HELD THAT ONCE THE SALE IS ACCEPTED BY THE AO, THE VERY BASIS OF PURCHASES COULD NOT BE QUESTIONED.. NOT THE ENTIRE PURCHASE PRICE COULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE 4 ITA NO. 2508/MUM/2017 (A.Y. 2011 - 12) ITO VS. M/S. PUSHPAK METAL INDUSTRIES ASSESSEE. THE ESTIMATION VARIES WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK COU LD BE ADOPTED. GIVEN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, I FIND IT REASONABLE TO ESTIMATE THE GROSS PROFIT ON THE ALLEGED BOGUS PURCHASES AT 12.5%. 7 . AGAINST THE ABOVE ORDER , THE R EVENUE IS IN APPEAL BEFORE THE ITAT. 8 . I HAVE HEARD THE L D. DR AND PERUSED THE RECORDS. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED . I T IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DIS ALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHAS ES. THIS PROPOSITION IS SUPPORTED FROM H ON BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ E XIMP E NTERPRISES (IN W RIT P ETITION NO 2860, ORDER DT 18.6.2014). IN THIS CASE , THE HONBLE HIGH COURT HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER , THE FACTS OF THE PRESENT CASE INDICATE THAT THE ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYMENT OF TAX AND OTHER S AT THE EXPENSE OF THE EXCHEQUER . IN SU C H SITUATION , IN MY CONSIDERED OPINION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE OUT OF THE BOGUS PURCHASES DONE BY THE L D. CIT(A) MEETS THE END OF JUSTICE. ACCORDINGLY , I UPHOLD THE ORDER OF LD . CIT(A) . 9 . IN THE RESULT , THIS APPEAL FILED BY THE R EVENUE STANDS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 10.10.2017 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 10.10.2017 . . ./ ROSHANI , SR. PS 5 ITA NO. 2508/MUM/2017 (A.Y. 2011 - 12) ITO VS. M/S. PUSHPAK METAL INDUSTRIES / COPY OF THE ORDER FORWAR DED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI