Shri Takhatmal Mulchand Jain, Surat V. The Income tax Officer,Ward-3(4), Surat

ITA 2597/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80580 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts
• Section: 69C; 40A(3); 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 0 0 , , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICI AL MEMBER ./ ITA NO . 2597 /AHD/ 2010 [ [ / ASSESSMENT YEAR: 2007 - 08 SHRI TAKATMAL MULTANMAL JAIN (HUF), PROP. RAGHUNANDAN SYNTEX, 1103, NAVKAR VILLA, DEEPA COMPLEX, ADAJAN, SURAT PAN : AACHJ 0948 J VS ITO, WARD - 3 (4), SURAT ./ ITA NO. 2602 /AHD/ 2010 [ [ / ASSESSMENT YEAR: 2007 - 08 ITO, WARD - 3 (4), SURAT VS SHRI TAKATMAL MULTANMAL JAIN (HUF), SURAT PAN : AACHJ 0948 J / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : SHRI M.K. PATEL , AR REVENU E BY : SHRI NIMESH YADAV, SR. DR. / DATE OF HEARING : 29 / 12 /2014 / DATE OF PRONOUNCEMENT: 31 / 12 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE CROSS APPEALS FILED BY THE A S SESSEE AND THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - I I , SURAT DATED 23 .0 6 .201 0 FOR ASSESSMENT YEAR 200 7 - 0 8 . ITA NOS. 2597 & 2602 /AHD/20 1 0 (ASSESSEE & REVENUE) TAKHATMAL MULCHAND JAIN (HUF) - ITO - AY 2007 - 08 - 2 - 2. IN THE REVENUES APPEAL, THE SOLE GROUND OF APPEAL TAKEN IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.33,16,740/ - ON ACCOUNT OF UNVERIFIABLE PURCHASES. 3. IN THE ASSESSEES APPEAL, THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF PURCHASES TO THE EXTENT OF RS.10,00,00 0/ - . 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED RETURN OF INCOME SHOWING TAXABLE INCOME AT RS.2,12,320/ - ON 31.10.2007. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN DRESS MATERIAL / SAREES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITION OF RS.33,16,740/ - ON ACCOUNT OF UNVERIFIABLE PURCHASES. THE ASSESSING OFFICER HAS ALSO REJECTED THE BOOKS OF ACCOUNTS BECAUSE LETTERS U/S 133(6) WERE RETURNED UNSERVED. THE ASSESSING OFFICER OBSERVED THAT PAYMENTS TO SOM E OF THE PARTIES WERE ENCASHED BY THE ASSESSEE AND IN SOME CASES, THIRD PARTY CHEQUES WERE RECEIVED. THE ASSESSING OFFICER FURTHER APPLIED DECISION OF VIJAY PROTEIN LTD V/S. ACIT AND DIS ALLOWED 25% OF PURCHASES OF RS.1,32,66, 964/ - . THE ASSESSING OFFICER HA S ALSO RELIED UPON THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND WORKED OUT DISALLOWANCE OF RS.26,35,860/ - (20% OF RS.1,31,79,309/ - ). THE DISALLOWANCE AS PER VIJAY PROTEIN WAS HIGHER AND, THEREFORE, THE AMOUNT OF RS.33,16,740/ - WAS ADDED AS UNVERIFIABLE PURCHASES. 5. ON APPEAL, THE CIT(A) HELD AS UNDER: - 5. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. I FIND THAT THE AO MADE THE DISALLOWANCE MAINLY ON THE GROUND THAT SOME OF THE NOTICES U/S 133(6) HAD BEEN RETURNED UNSERVED, WHILE SOME WERE NOT CO MPLIED WITH. THIS WAS IN RESPECT OF THE 11 ITA NOS. 2597 & 2602 /AHD/20 1 0 (ASSESSEE & REVENUE) TAKHATMAL MULCHAND JAIN (HUF) - ITO - AY 2007 - 08 - 3 - PARTIES TO WHOM THE NOTICES WERE ISSUED, THERE BEING A TOTAL OF 16 PARTIES, (ERRONEOUSLY MENTIONED BY THE AO AS 15) FROM WHOM PURCHASES TOTALLING RS 1,32,66,964 WERE MADE DURING THE YEAR. NO INQUIRIES WERE MADE WI TH 5 PARTIES FROM WHOM, AS MENTIONED BY THE AR, PURCHASES TOTALLING RS 19,94,222 WERE MADE. OUT OF THE 11 PARTIES TO WHOM NOTICES WERE ISSUED 3 DID NOT REPLY EVEN THOUGH, THE NOTICES WERE SERVED ON THEM. PURCHASES FROM THESE PARTIES TOTALLED RS 14,53,610. SI NCE, THE NOTICES WERE SERVED ON THEM, IT SHOWED THAT THESE PARTIES WERE IN EXISTENCE. IT MUST BE APPRECIATED THAT THE ADDRESSES WERE PROVIDED BY THE ASSESSEE FROM THE BILLS AND INVOICES RAISED BY THESE PARTIES AND, GIVEN THE NATURE OF TRANSACTIONS IN TEX TILE MARKET WHERE THERE IS NEVER ANY OPPORTUNITY FOR ANYONE TO VERIFY THE AUTHENTICITY OF THE ADDRESSES MENTIONED THEREIN, THE ASSESSEE COULD NOT BE HELD RESPONSIBLE FOR INCORRECT OR INCOMPLETE ADDRESSES. A BUYER IS ONLY CONCERNED WITH THE DELIVERY OF THE PURCHASED GOODS AND MAKING THE PAYMENTS IN THE MANNER DESIRED BY THE SUPPLIERS. THEREFORE, SIMPLY BECAUSE THE NOTICES U/S 133(6) COULD NOT BE SERVED ON SOME OF THE PARTIES, IT COULD NOT BE A GROUND TO TREAT THE ENTIRE PURCHASES OF RS 1.33 CRORES AS UNVERIF IABLE. THE POINT TO NOTE IS THAT, SINCE SOME OF THE NOTICES U/S 133(6) COULD NOT BE SERVED ON THE CONCERNED PARTIES, THE AO SHOULD HAVE TAKEN HIS INQUIRIES TO THE NEXT LEVEL AND SHOULD HAVE EITHER ISSUED SUMMONS U/S 131, OR SHOULD HAVE DEPUTED THE INSPECTO R TO MAKE SPOT INQUIRIES TO FIND OUT ABOUT THE EXISTENCE OF THESE PARTIES AND THE AUTHENTICITY OF THE TRANSACTIONS CLAIMED TO HAVE BEEN ENTERED INTO WITH THEM BY THE ASSESSEE. 5.1 THE ASSESSEE HAD ISSUED CROSS - CHEQUES WHICH WAS A PERFECTLY LEGAL MODE OF P AYMENT DURING THE YEAR UNDER CONSIDERATION. THESE CHEQUES HAVE TO BE SIGNED ON THE REVERSE BY THE PERSON WHO ISSUES THEM AND, AS A RESULT, THE ASSESSEE'S SIGNATURE WOULD HAVE APPEARED ON THE REVERSE OF ALL SUCH CHEQUES. CROSS - CHEQUES ARE USUALLY TREATED AS AN INSTRUMENT AT PAR WITH CASH AND ARE OFTEN ENDORSED SEVERAL TIMES OVER. THESE CHEQUES ARE ALSO DISCOUNTED. THEREFORE, THE FINDING GIVEN BY THE AO ON THE BASIS OF THE BANK INQUIRIES THAT THE CHEQUES WERE DEPOSITED IN THE ACCOUNTS OF PARTIES OTHER THAN TH OSE TO WHOM THEY WERE ISSUED, WOULD HAVE TO BE SEEN IN THE LIGHT OF THE PREVAILING PRACTICE IN THE TEXTILE MARKET, INVOLVING THE ISSUE AND UTILISATION OF CROSS - CHEQUES. IT HAS NOT BEEN DISPUTED BY THE AO THAT M/S R.S.BULLION IS A CHEQUE DISCOUNTER OR A SHR OFF. MOST OF THE CHEQUES WERE DEPOSITED IN THE ACCOUNT OF THE SAID SHROFF, WHICH ALSO COULD NOT BE A GROUND TO DOUBT THE AUTHENTICITY OF THE PURCHASES. ITA NOS. 2597 & 2602 /AHD/20 1 0 (ASSESSEE & REVENUE) TAKHATMAL MULCHAND JAIN (HUF) - ITO - AY 2007 - 08 - 4 - 5.2 WHILE MAKING THE DISALLOWANCE, THE AO PLACED RELIANCE ON THE CASE OF M/S VIJAY PROTEINS (SUPRA). I AM OF THE VIEW THAT THE FACTS OF M/S VIJAY PROTEINS WERE NOT THE SAME AS THE FACTS OF THE ASSESSEE'S CASE. MOST IMPORTANTLY, THERE WAS NO BENAMI ACCOUNT OR ANY BENAMIDAR OPERATING ANY BANK ACCOUNT. THERE WAS NO FINDING THAT THE AMOUNTS PAID BY THE ASSESSEE TOWARDS THE PURCHASES HAD BEEN ENCASHED EITHER BY THE ASSESSEE OR ANY OF HIS REPRESENTATIVE, OR THE MONIES WERE DEPOSITED EITHER IN A BENAMI ACCOUNT OR THE ASSESSEE'S ACCOUNT. ON THE CONTRARY, THE FACTS OF M/S SUNSTEEL (SUPRA) WERE ALMOST SIMILAR TO THE FACTS OF THE ASSESSEE'S CASE. IN THE CASE OF M/S SUNSTEEL ALSO SOME OF THE PARTIES WERE NOT TRACEABLE, NOR WERE THEY PRODUCED FOR EXAMINATION. AS IN THE CASE OF THE ASSESSEE, GOODS HAD BEEN RECEIVED AND ONLY AFTER REC EIVING THE GOODS THE SALES WERE E FFECTED. THE SALES WERE RIOT DISPUTED. THERE WAS NOTHING ON RECORD TO SHOW THAT THE PAYMENTS MADE TOWARDS THE PURCHASES HAD COME BACK TO THE ASSESSEE. AN IMPORTANT FACT WHICH THE ITAT SPECIFICALLY MENTIONED WHILE UPHOLDING THE ACTION OF THE CIT(APPEALS) WA S THAT, EVEN IF AN ADDITION IS MADE U/S 69C AS INCOME FROM OTHER SOURCES, THEN DEDUCTION HAS TO BE ALLOWED TOWARDS EXPENSES INCURRED ON EARNING SUCH INCOME, GIVEN THE FACT THAT THE SALES WERE NOT DISPUTED. THE HON'BLE ITAT THUS HELD THAT, AT THE MOST IT MAY BE PRESUMED THAT THE ASSESSEE DID NOT MAKE PURCHASES FROM THE PARTIES WHO COULD NOT BE TRACED, AND THAT THE PURCHASES WERE MADE FROM UNREGISTERED DEALERS ON WHICH THE ASSESSEE HAD EARNED A HIGHER MARGIN. CONSEQUENTLY, AN ESTIMATION OF PROFIT CO ULD BE MADE WHICH WOULD BE FAIR AND REASONABLE. THE HON'BLE ITAT ESTIMATED SUCH PROFIT/INCOME AT RS 50,000 AND DELETED THE BALANCE ADDITION OF RS 26,89,407. 5.3 THE ONLY DIFFERENCE IN THE FACTS OF M/S SUNSTEEL AND THAT OF THE ASSESSEE IS THAT, THE ADDITION ON ACCOUNT OF UNEXPLAINED PURCHASES IN THE CASE OF M/S SUNSTEEL WOULD HAVE RAISED THE GP RATIO TO 100.6%, WHILE IN THE CASE OF THE ASSESSEE, IT RAISED THE GP RATIO TO 9.14 %. SUCH ARITHMETICAL VARIATION HOWEVER SHOULD NOT BE ALLOWED TO DISTOR T THE CORRECT APPRECIATION OF THE ESSENTIAL FACTS OF THE TWO CASES. 5.4 IF THE ESSENCE OF THE DECISION IN THE CASE OF M/S SUNSTEEL IS APPLIED TO THE FACTS OF THE ASSESSEE'S CASE, IT WILL SEEN THAT THE ASSESSEE HAD DECLARED CERTAIN INCOME ARISING FROM TRAD ING IN ART SILK CLOTH. THE INCOME HAD ARISEN FROM CERTAIN PURCHASES AND SALES. WHILE THE SALES WERE NOT DISPUTED, THE PURCHASES WERE. IT ITA NOS. 2597 & 2602 /AHD/20 1 0 (ASSESSEE & REVENUE) TAKHATMAL MULCHAND JAIN (HUF) - ITO - AY 2007 - 08 - 5 - WAS DISPUTED BECAUSE NOTICES U/S 133(6) COULD NOT BE SERVED ON SOME OF THE SUPPLIERS, LEADING TO THE CONCLUSION THAT TH ESE SUPPLIERS DID NOT EXIST, AND HENCE, PURCHASES WERE NOT VERIFIABLE OR BOGUS. AS HELD BY THE ITAT, IF THE PURCHASES WERE NOT MADE FROM SUCH PARTIES, THEN IT WOULD H AVE TO BE ASSUMED THAT THEY WERE MADE FROM OTHER UNREGISTERED PARTIES, ON WHICH THE ASSESS EE WOULD HAVE EARNED HIGHER MARGINS. IT IS ONLY THIS UNDISCLOSED PROFIT WHICH CAN BE BROUGHT TO TAX INSTEAD OF TREATING THE ENTIRE PURCHASES AS UNVERIFIABLE. IN KEEPING WITH THE VIEW TAKEN BY THE HON'BLE ITAT IN THE CASE OF M/S SUNSTEE L, I ESTIMATE THE PROFIT ARISING FROM SUCH TRANSACTIONS AT RS . 10,00,000. THI S MEANS THAT THE ADDITION OF RS. 33,19,740 MADE ON ACCOUNT OF UNVERIFIABLE PUR CHASES WILL BE RESTRICTED TO RS. 10,00,000, THE ASSESSEE GETTING A RELIEF OF RS. 23,16,740. 6. THE D EPARTMENT R EPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT NEITHER THE ASSESSEE NOR ANY OF HIS RELATIVE WAS PROPRIETOR OF M/S. R.S. BULLION AND THE CHEQUES WERE DISCOUNTED BY VARIOUS CREDITORS AND IN NO WAY COULD THE MONEY HAVE RETURNED BACK TO THE ASSESSEE. THEREFORE, RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KISHANCHAND CHELARAM VS. CIT, 215 ITR 713 (SC), IT WAS SUBMITTED THAT INQUIRY MADE AT THE BACK OF THE ASSESSEE, WITHOUT CONFRONTING THE ASSESSEE WITH THE FINDINGS, COULD NOT BE USED AS EVIDENCE AGAINST THE ASSESSEE. FURTHER, RELYING ON THE DECISION OF THE AHMEDABAD BENCH OF TH E TRIBUNAL IN THE CASE OF ITO VS. SUN STEEL, (2005) 92 TTJ 1126, IT WAS THE CONTENTION THAT ALTHOUGH SOME DISALLOWANCE WAS CALLED FOR ON ACCOUNT OF UNVERIFIABLE PURCHASES, BUT THE HIGH DISALLOWANCE @ 25% WAS NOT WARRANTED. 7. WE HAVE HEARD THE RIVAL SUBM ISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. BOTH THE PARTIES COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE FINDINGS OF THE CIT(A). IN ITA NOS. 2597 & 2602 /AHD/20 1 0 (ASSESSEE & REVENUE) TAKHATMAL MULCHAND JAIN (HUF) - ITO - AY 2007 - 08 - 6 - OUR CONSIDERED VIEW, THE ADDITION SUSTAINED AT RS.10,00,000/ - ON ACCOUNT OF UNVERIFIABLE PURCHASES OF RS.1,32,66,964/ - , WHEN THE FACT OF PURCHASE IS UNDISPUTABLE AS CORRESPONDING SALES HAVE BEEN ACCEPTED BY THE DEPARTMENT, WAS REASONABLE AND JUSTIFIED AND WE DO NOT HAVE ANY MATERIAL BROUGHT BEFORE US BY EITHER OF THE PARTIES TO I NTERFERE WITH THE FINDINGS OF THE CIT(A). THEREFORE, THE ORDER OF THE CIT(A) IS CONFIRME D AND THE APPEAL OF BOTH THE PARTIES ARE DISMISSED. 8. IN THE RESULT, THE ASSESSEES APPEAL AS WELL AS REVENUES APPEAL, BOTH ARE DISMISSED. ORDER PRONOUNCED IN TH E COURT ON WEDNESDAY , THE 31 ST OF DECEMBER , 2014 AT AHMEDABAD. SD/ - SD/ - (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 31 /12/2014 BIJU T., PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - I I , SURAT 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD