ITO 19(2)(5), MUMBAI V. PRAVIN B KANUNGO, MUMBAI

ITA 2509/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9555 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(3); 147; 132

Judgement Text

P A G E | 1 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO.2509/MUM/2017 ( / ASSESSMENT YEAR: 2011 - 12) ITO 19(2)(5) 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI - 400007 / VS. PRAVEEN B. KANUNGO 88/102 ARAB BUILDING, SHOP NO. 7, 7 TH KHETWADI BACK ROAD, MUMBAI - 400 004 ./ ./ PAN/GIR NO. AAYPK4480G ( / REVENUE ) : ( / ASSESSEE ) / REVENUE BY : SHRI M.V. RAJGURU, SR. D.R / ASSESSEE BY : NONE / DATE OF HEARING : 04/09/2017 / DATE OF PRONOUNCEMENT : 13 /09/2017 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST T HE ORDER PASSED BY THE CIT(A) - 29, MUMBAI, DATED 19 .01.2017, WHICH IN ITSELF ARISES FROM THE ASSESSMENT ORDER PASSED BY THE A.O U/S. 143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT ), DATED P A G E | 2 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO 14. 1 2.2015 . THE REVENUE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED THE FOLLOWING GROUNDS OF APPEAL BEFO RE US: - 1. ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT (A) WAS JUSTIFIED IN SUSTAINING ONLY AN ADDITION 5% PROFIT RATE ON TOTAL PURCHASES OF RS. 4,94,84,389/ - MADE FROM 7 PARTIES OF A GROUP CONCERN OF M/S. BHANWARLAL GROUP OF COMPANIES, WHO WERE IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES AS ESTABLISHED BY THE INVESTIGATING WING CONSEQUENT TO SEARCH ACTION U/S 132 OF THE I . T. ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, WHETHER THE LD. CI T(A) WAS JUSTIFIED IN SUSTAINING ONLY AN ADDITION 5%% PROFIT RATE ON TOTAL PURCHASES OF RS. 4,94,84,389/ - MADE FROM 7 PARTIES AS THE ASSESSEE FAILED TO FAILED TO PROVE THE GENUINENESS OF SAID PURCHASES WHEN ASKED TO PROVIDE TH E EVIDENCE OF WHEREABOUTS OF THE PURCHASES PARTIES, DELIVERY CHALLANS, LORRY RECEIPTS AND TRANSPORTATION DETAILS BY THE ASSESSING OFFICER. 3. THE APPELLANT PR AYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET - ASIDE AND THAT OF THE A . O BE RESTORED. 4. THE APPELLANT CRAVES LEAVE, ADD, AMEND, ALTER OR VARY ANY OF THE GRO U NDS OF APPEAL AT TH E TIME AND OR BEFORE THE HEARING OF THE APPEAL. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METAL S HAD FILED HIS RETURN OF INCOME FOR A.Y. 2011 - 12 ON 29.07.2011, DECLARING INCOME AT RS. 3,84,950/ - . THAT THE A.O WAS INTIMATED BY THE OFFICE OF DGIT (INV.), MUMBAI , THAT AS PER THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARA SHTRA, THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION TAKEN ENTRIES OF BOGUS PURCHASES FROM THE FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT. 1. DEEP METAL & TUBE 61,45,371/ - 2. PRIME STEEL IMPEX 73,29,305/ - 3. JAY AMBE METAL 1,15,36,405/ - 4. ASIAN METAL INDUSTRIES 1,40,69,411/ - 5. GLOBE IMPEX (INDIA) 13,88,342/ - P A G E | 3 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO 6. DEVANG METAL INDIA 1,26,764/ - 7. PADMAVATI STEEL 88,85,791/ - TOTAL 4,94,81,389/ - THE A.O ON THE BASIS OF THE AFORESAID INFORMATION REOPENED THE CASE OF THE ASSESSEE U/S 147 OF THE ACT . THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT FROM A PERUSAL OF THE STOCK STATEMENT FURNISHED BY THE ASSESSEE , IT COULD SAFELY BE CONCLUDED THAT THE ASSESSEE HA D AS A MATTER OF FACT MADE PURCHASES OF THE GOODS UNDER CONSIDERATION, THOUGH NO T FROM THE AFOREMENTIONED PARTIES , BUT FROM THE OPEN/GREY MARKET. THE A.O IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THUS HELD A CONVICTION THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF HIS CLAIM OF HAVING MADE THE PURCHASES FROM THE AFOREMENTIONED PARTIES . THE A.O THUS BEING OF THE VIEW THAT AS THE ASSESSEE HAD MERELY OBTAINED THE ACCOMMODATION BILLS FROM THE AFOREMENTIONED PARTIES AFTER PURCHASING THE GOODS FROM OPEN/GREY MARKET , THEREFORE , CONCLUDED THAT HE MUST HAVE BENEFITTED BY MAKING THE SAID PURCHASE AT A LOWER RATE. THE A.O THUS BEING OF THE VIEW THAT IN THE BACKDROP OF THE AFORESAID FACTS THE PURCHASE RATE MENTIONED IN THE SUPPLIER SALES INVOICES COULD NOT BE ACCEPTED, THEREFORE , REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE ACT. THE A.O THEREAFTER IN THE BACKDROP OF HIS AFORESAI D OBSERVATI ON S ESTIMATED THE PROFIT MARGIN WHICH THE ASSESSEE MUST HAD EARNED FROM MAKING THE PURCHASE S FROM THE OPEN/GREY MARKET AT 12.5% , AND APPLYING THE SAME TO THE AGGREGATE VALUE OF THE PURCHASE S OF RS.4,94,81,389/ - CLAIMED BY THE ASSESSEE TO HAVE BE EN MADE FROM THE AFOREMENTIONED PARTIES, THUS, MADE A CONSEQUENTIAL ADDITION OF RS.61,85,173/ - IN THE HANDS OF THE ASSESSEE. P A G E | 4 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO 3. THE ASSESSEE BEING AGGRIEVED WITH THE ADDITION MADE BY THE A.O CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTE R DELIBERATING ON THE CONTENTION S OF THE ASSESSEE IN THE BACKDROP OF THE FACTS OF THE CASE , FOUND HIMSELF TO BE IN AGREEMENT WITH THE VIEW ARRIVED AT BY THE A.O THAT AS THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM THE AFOREMENTIONED PARTIES , THERE FORE, IT COULD SAFELY BE CONCLUDED THAT THE PURCHASES WERE MADE BY HIM NOT FROM THE AFOREMENTIONED PARTIES, BUT FROM THE UNKNOWN PARTIES OPERATING IN THE OPEN/GREY MARKET. THE CIT(A) OBSERVED THAT IN THE BACKDROP OF THE CLAIM OF THE A.O THAT THE ASSESSEE HAD MADE BOGUS PURCHASES TO THE TUNE OF RS.4,94,81,389/ - , IT WOULD EMERGE THAT THE ASSESSEE HAD MADE 99% OF ITS TOTAL PURCHASES OF RS.4,97,90,088/ - FROM THE OPEN/GREY MARKET. THE CIT(A ) OBSERVED THAT I T WAS BEYOND COMPREHENSION THAT 99% OF THE PURCHASES OF THE ASSESSEE WERE BOGUS . BE THAT AS IT MAY, IT WAS OBSERVED BY THE CIT(A) THAT IF THE ADDITIONAL G.P. RATE OF 12.5% WAS APPLIED TO THE AGGREGATE VALUE OF THE AFORESAID BOGUS PURCHASES OF RS.4,94,81,389/ - (SUPRA), THEN, THE G.P . RATE IN THE HANDS OF THE ASSESSEE WOULD SHOOT UP TO 15.4%, WHICH WAS UNHEARD OF IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METALS. THAT ON THE BASIS OF HIS AFORESAID OBSERVATION S THE CIT(A) CONCLUDED THAT THE PROFIT ELEMENT/MARGIN IN THE HANDS OF THE ASSESSEE FROM MAKING THE PURCHASES FROM THE OPEN/GREY MARKET COULD FAIRLY BE ADOPTED TO THE EXTENT OF THE VAT INVOLVED IN RESPECT OF THE ITEMS TRADED BY THE ASSESSEE, WHICH AT THE RELEVANT POINT OF TIME WA S 4%. THUS THE CIT(A) IN THE BACKDROP OF THE AFORESAID FACTS , TAKING A REALISTIC PICTURE OF THE PROFIT WHICH THE ASSESSEE COULD FAIRLY BE HELD TO HAVE EARNED FROM MAKING THE PURCHASES FROM THE OPEN/GREY MARKET , THUS ESTIMATED THE ADDITIONAL G.P. RATE IN T HE HANDS OF THE ASSESSEE AT 5% OF THE AGGREGATE VALUE OF THE BOGUS PURCHASES AND THUS PARTLY ALLOWED THE APPEAL. P A G E | 5 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO 4. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THAT DESPITE THE FACT THAT THE ASSESSEE RESPONDENT WAS INTIMATED OF THE DATE OF HEARING OF THE APPEAL , HE HOWEVER NEITHER DID PUT UP AN APPEARANCE, NOR ANY APPLICATION SEEKING AN ADJOURNMENT WAS FILED BEFORE US . WE THUS BEING LEFT WITH NO OTHER ALTERNATIVE, THEREFORE, AS PER RULE 25 OF THE A PPELLATE TRIBUNAL RULE S, 1963 , PROCEED WITH AND DISPOSE OF THE PRESENT APPEAL AFTER HEARING THE APPELLANT REVENUE. THE LD. DEPARTMENT AL REPRESENTATIVE (FOR SHORT D.R ) RELIED ON THE ORDER OF THE A.O AND SUBMITTED THAT THE CIT(A) HAD ERRED IN RESTRI CTING THE ADDITIONAL G.P RATE TO 5% AS AGAINST 12.5% ADOPTED BY THE A.O. IT WAS THUS SUBMITTED BY THE LD. D .R THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 5 . WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE, PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAD FAIRLY OBSERVED THAT IF THE ESTIMATED ADDITIONAL G.P. OF 12.5% W AS APPLIED TO THE AGGREGATE VALUE OF THE BOGUS PURCHASES IN THE CASE OF THE ASSESSEE, THEN THE G.P. RATE IN THE HANDS OF THE ASSESSEE WOULD SHOOT UP TO 15.4%. WE FIND THAT THE CIT(A) HAD BY WAY OF A VERY WELL REASONED ORDER OBSERVED THAT AS THE G.P RATE IN THE TRADE LINE OF THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METALS RANGES FROM 2 % - 5%, AND THE ASSESSEE HAD ALREADY SHOWN A G.P. RATE OF 2.92%, THEREFORE, ADOPTING G.P. RATE OF 15.4% (SUPRA) WOULD BE HIGHLY EXORBITANT AND ABSOLUTELY UNREALISTIC. W E ARE OF THE CONSIDERED VIEW THAT THE CIT(A) AFTER DELIBERATING ON THE FACTS INVOLVED IN THE CASE OF THE PRESENT ASSESSEE , HAD THUS MOST REASONABLY KEEPING IN VIEW THE VAT RATE APPLICABLE IN THE TRADE LINE OF P A G E | 6 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO THE ASSESSEE RESTRICTED THE ADDITION TO 5% OF T HE VALUE OF THE BOGUS PURCHASES. WE THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS FIND NO REASON TO DISLODGE THE WELL REASONED ORDER OF THE CIT(A) AND THUS UPHOLD THE SAME . 5. THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 .09.2017 SD/ - SD/ - (RAJENDRA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 13 .09 .2017 PS. ROHIT KUMAR / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 7 ITA NO.2509/MUM/2017 ITO VS. PRAVEEN B. KANUNGO