ITO 17(3)(2), MUMBAI V. ROOP RACHANA, MUMBAI

ITA 261/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0978 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KEYURI DESAI
• Keywords: Bogus purchase; Peak credit; Additional evidence; Question of law
• Section: 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER I.T.A. NO. 261/MUM/2015 ASSESSMENT YEAR: 2010-11 ITO 17 (3) (2) R.NO.114 IST FLOOR, AAYAKAR BHAVAN, M.K. MARG. MUMBAI, PIN:400020 / VS. ROOP RACHANA 147/149 IST FLOOR, AZIZ MANISON MARG, MUMBAI PIN: 400003 ./ ./PAN/GIR NO AAAFR5729D ( /APPELLANT ) : ( / RESPONDENT ) I.T.A. NO. 7363/MUM/2014 ASSESSMENT YEAR: 2010-11 ROOP RAC HANA 147/149 IST FLOOR, AZIZ MANISON MARG, MUMBAI PIN: 400003 / VS. ITO 17 (3) (2) R.NO.114 IST FLOOR, AAYAKAR BHAVAN, M.K. MARG. MUMBAI, PIN:400020 ./ ./PAN/GIR NO AAAFR5729D ( /APPELLANT ) : ( / RESPONDENT ) APPELLANT BY : PURUSHOTTAM KUMAR RESPONDENT BY : KEYURI DESAI / DATE OF HEARING : 20/04/2017 / DATE OF ORDER : 03/05/2017 / O R D E R PER ASHWANI TANEJA, AM : 2 ROOP RACHANA THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE OR DER OF THE LD. CIT(A)- 26, MUMBAI PASSED AGAINST THE ORDER U/S 143(3) OF T HE I.T. ACT, 1961, DATED 25/03/2013 FOR ASSESSMENT YEAR 2010-11. THE REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION AT 12.5% OF THE T OTAL ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHA SES OF RS.1,60,65,860/- IGNORING THE FACT THAT QUANTATIVE DETAILS WERE NOT PRODUCED BY THE ASSESSEE DURING THE COURSE OF ASSES SMENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL EVIDENCE IN VIOLATION OF RULES 46A WITHOUT GRANTING OPPORTUNITY TO THE ASSESSING OFFIC ER TO VERIFY THE SAME. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS(S) BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. THE ASSESSEE HAS FILED THE APPEAL ON FOLLOWING GROU NDS:- 1. THE INCOME TAX OFFICER 15(2)(3) AND COMM. OF INCOME TAX(APPEALS) 26 ERRED IN DISALLOWING PURCHASES OF RS.1,60,65,860 /- ALLIED AS BOGUS PURCHASES AND ESTIMATED GROSS PROFIT PERCENTAGE @ 1 2.5% ON SUCH PURCHASES WITHOUT ANY BASIS AMOUNTING TO RS.20,08,2 32/- 2. THE APPELLANT CRAVES TO ADD. AMEND OR SUBSTITUTE THE GROUNDS OF APPEALS. 3. THE PERUSAL OF THE GROUNDS REVEALS THAT THE COMMON ISSUE HAS BEEN RAISED BY BOTH THE PARTIES. THE ASSESSING OFFICER H AD DISALLOWED THE PURCHASES AGGREGATING TO RS.1,60,65,860/- IN TOTAL ON THE GRO UND THAT THESE WERE BOGUS. IN APPEAL BEFORE LD. CIT(A) ASSESSEE CONTESTED THE DISALLOWANCE VEHEMENTLY AND SUBMITTED VARIOUS EVIDENCES TO SHOW THAT THE TR ANSACTION OF THE ASSESSEE 3 ROOP RACHANA WAS GENUINE. HOWEVER, LD. CIT(A) WAS NOT CONVINCED WITH THE SUBMISSION TO THE ASSESSEE FULLY AND THEREFORE, HE PARTLY AGREED WITH THE ASSESSEE THAT THOUGH THE DISALLOWANCE SHOULD BE MADE OF THE PURCH ASES BUT NOT IN FULL. THEREFORE, AFTER CONSIDERING THE FACTS OF THIS CASE AND VARIOUS JUDGMENTS, HE RESTRICTED THE DISALLOWANCE TO 12.5% OF THE AMOUNT OF PURCHASES DISALLOWED BY THE ASSESSING OFFICER BY MAKING FOLLOWING OBSERVATI ON:- FROM THE VARIOUS JUDGMENTS OF SUPREME COURT, VARIOU S HIGH COURTS AND DIFFERENT BENCHES OF ITAT AS ABOVE, IT EMERGES THAT IN A CASE WHERE THE SUPPLIER IS NOT FOUND AT THE ADDRESS FURNISHED, THE DISALLOWANCE OF WHOLE OF SUCH PURCHASE CAN BE MADE ONLY IF THE FACTS IN T HE CASE ARE SIMILAR TO THE FACTS IN CASE OF LA MEDICA, SRI GANESH RICE MIL LS, VICKY FOODS (P.) LTD, INDIAN CARPET MANUFACTURING COMPANY, KHANDELWAI TRA DING COMPANY, D.D. KOCHHAR AND SONS, KACHWALA GEMS ETC. IN ALL TH ESE CASES, IN ADDITION TO VARIOUS OTHER EVIDENCES AVAILABLE IN EA CH SUCH CASE, RELIABLE QUANTITATIVE DETAILS WERE NOT AVAILABLE AND ALSO TH E GENUINENESS OF PAYMENTS FOR PURCHASES WAS NOT SHOWN RATHER THE PAY MENT WAS NOT ESTABLISHED AND EVIDENCE PRODUCED IN SUPPORT OF PAY MENTS FAILED THE TESTS OF ENQUIRY. IN OTHER CASES, WHERE THE FULL QUANTITATIVE DETAIL S ARE NOT AVAILABLE OR THAT SUCH DETAILS ARE NOT FULLY RELIABLE AND CON SUMPTION OF MATERIAL IS SHOWN BUT YIELD IS TOO LOW AND PAYMENTS ARE ALSO DO UBTFUL, AS IN CASE OF VIJAY PROTEINS LTD., BHOLANATH POLY FAB PVT. LTD., SIMIT P. SHETH, SANKET STEEL TRADERS, SATHYANARAYAN P. RATHI, ETC., PURCHA SES MAXIMUM TO THE EXTENT 25% AS IN VIJAY PROTEINS CASE AND UPTO 12.5% AS IN OTHER CASES HAS BEEN HELD DISALLOWABLE. HOWEVER, IN CASE OF SUNSTEEL, ADDITION OF ONLY ABO UT 2% HAS BEEN SUSTAINED WHEREAS IN THE CASE OF CHAMPALAL CHOUDHAR Y ADDITION OF 5% HAS BEEN SUSTAINED. THE ESTIMATED DISALLOWANCE HAS BEEN UPHELD TO AUGMENT THE POSSIBLE SUPPRESSION IN GROSS PROFIT AP PLYING REAL INCOME THEORY DEPENDING ON THE FACTS OF THE CASE. NO BASIS OF SUCH ESTIMATION HAS BEEN GIVEN IN THESE DECISIONS. ADDITIONS MADE U /S 69C IN THE CASE OF SHUBH LAXMI EXPORTS AND SUNSTEEL HAVE BEEN DELETED. IN OTHER CASES, WHERE RELIABLE QUANTITATIVE DETAIL S ARE AVAILABLE AND PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUEUS, DI SALLOWANCE MADE 4 ROOP RACHANA ON ACCOUNT OF PURCHASES, IN CASES LIKE NIKUNJ EXIMP ENTERPRISES (P.) LTD (HIGH COURT AS WELL AS ITAT), BABULAL C. BORANA, M. K. BROTHERS, NANGALIA FABRICS PVT. LTD., RAJIV G. KALATHIL, SAGAR BOSE, R AJESH P. SONI, PERMANAND, DIAGNOSTIC ETC. HAS BEEN DELETED. HOWEVER, ALL SUCH CASES ARE HELD TO BE A CASE OF F ACTS AND NO QUESTION OF LAW IS INVOLVED IN SUCH CASES. ON BASIS OF THE ABOVE DECISIONS, THE LAW THAT EMERGES IS THAT RELIABLE QUANTITATIVE DETAILS AND PAYMENTS BY ACCOUNT PAYEE CHEQUES ARE PRIMARY TESTS, ON WHIC H THE GENUINENESS OF PURCHASES, WHERE SUPPLIERS ARE NOT AVAILABLE, IS REQUIRED TO BE TESTED. OTHER EVIDENCE SUCH AS STATEMENTS AS TO PROVIDING HAWALA RECORDED BY SALES TAX AUTHORITIES OR THE DENIAL BY THE SUPPLIERS EVEN BEFORE THE AO, ABSENCE OF EVIDENCE IN SUPPORT OF TR ANSPORTATION/DELIVERY OF MATERIAL ETC. ARE NEITHER THAT RELEVANT NOR OVER RIDING AS EMERGING FROM CASES LIKE NIKUNJ EXIMP ENTERPRISES (P.) LTD. (HIGH COURT AS WELL AS ITAT), M.K. BROTHERS, NANGALIA FABRICS PVT. LTD., R AJIV G. KALATHIL, PARMANAND, SAGAR BOSE, DIAGNOSTICS ETC. TO DECIDE T HE GENUINENESS OF THE PURCHASES. THESE EVIDENCE ARE MERE INDICATORS A ND NOT CONCLUSIVE. FURTHER THE PEAK ADDITION ON THE BASIS OF UNEXPLAI NED/BOGUS CREDITS HAS BEEN HELD APPLICABLE ONLY IN CASE OF VI JAY PROTEINS AND ON PECULIAR FACTS OF THAT CASE. IN OTHER CASES, SUCH P EAK CREDIT ISSUE WAS GENERALLY NOT CONSIDERED AT ALL. RATHER PEAK CREDIT ADDITION MADE BY THE ASSESSING OFFICER IN CASES OF SHUBH LAXMI EXPORTS A ND SUNSTEEL HAS BEEN DELETED. THEREFORE, PEAK THEORY CANNOT BE APPLIED I N A CASE UNLESS ALL THE RELEVANT FACTS ARE CLOSELY SIMILAR TO THOSE IN VIJA Y PROTEINS CASE INCLUDING STRONG AND UN-REBUTTED EVIDENCE THAT THE PAYMENT MA DE FOR SUSPICIOUS PURCHASES HAS BEEN RETURNED BACK TO THE ASSESSEE IN CASH. THE GP RATE INCLUSIVE OF THESE PURCHASES FROM BOGU S PARTIES AND CORRESPONDING SALES IS SHOWN TO BE 4.35% WHEREAS TH E GROSS PROFIT RATE EXLUSIVE OF THESE PURCHASES FROM BOGUS PARTIES WOULD BE 16.25%. THE HISTORICAL GP RATES IN VARIOUS EARLIER YEARS AR E VARYING FROM 3.9% TO 4.3% WHICH IS NORMAL. THE SUBSEQUENT YEARS GP RATES IN DIFFERENT YEARS ARE ALSO SIMILAR. THE BENEFIT DERIVED BY THE ASSESSEE BY SHOWING PUR CHASES FROM SUCH BOGUS PARTIES CAN THEREFORE SAID TO BE THE LOW ERING OF GROSS PROFIT THAT WOULD HAVE BEEN EARNED BY THE ASSESSEE HAD SUCH PURCHASES AND CORRESPONDING SALES BEEN REMOVED FROM THE ACCOUNTS. THUS THE EFFECTIVE LOWERING IN THE GROSS PROFIT ACH IEVED BY THE 5 ROOP RACHANA ASSESSEE IS THEREFORE THE REAL ADDITIONAL INCOME OF THE ASSESSEE BY SHOWING SUCH PURCHASES AND ONLY SUCH ADDITIONAL INC OME WOULD THEREFORE BE TAXABLE. THOUGH IT IS NOT POSSIBLE TO DETERMINE THE REAL BE NEFITS DERIVED BY MAKING SUCH PURCHASES FROM BOGUS PARTIES, HOWEVER C ONSIDERING THAT PURCHASE WOULD NOT BE MADE FROM BOGUS PARTIES UNLES S THERE IS COMMENSURATE BENEFIT, THE ASSESSING OFFICER IS DIRE CTED TO ASSESS THE ADDITIONAL INCOME FROM THESE PURCHASES @ 12.5% OF S UCH PURCHASE. 4. DURING THE COURSE OF HEARING BEFORE US, LD. DR SUBM ITTED THAT THE PURCHASES SHOULD BE DISALLOWED IN FULL WHEREAS LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SINCE CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED THEREFORE, PURCHASES CANNOT BE DISALLOWED FULLY. LD. CIT(A) HA S RIGHTLY RESTRICTED THE DISALLOWANCE TO THE PROFIT ELEMENT ONLY, HOWEVER RA TE OF 12.5% IS EXCESSIVE WHICH SHOULD BE REDUCED. 5. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AND FIND THAT THE FINDINGS RECORDED BY LD. CIT(A) IS WELL-RE ASONED THEREFORE, WE UPHOLD THE FINDINGS OF THE LD. CIT(A) TO THE EXTENT THAT P URCHASES CANNOT BE DISALLOWED FULLY IN VIEW OF PECULIAR FACTS OF THIS CASE AND THE JUDGMENTS RELIED UPON BY THE LD. CIT(A). HOWEVER, RATE OF 12.5% SEEM S TO BE EXCESSIVE IN THE FACTS RECORDED BY THE ASSESSING OFFICER AND LD. CIT (A) IN THEIR ORDERS. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO REDUC E IT TO 10%. THEREFORE, ORDER OF THE LD. CIT(A) IS UPHELD SUBJECT TO THE MO DIFICATION THAT DISALLOWANCE SHOULD BE MADE AT THE RATE OF 10% AS AGAINST THE RA TE OF 12.5% DECIDED BY THE LD. CIT(A). AS A RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. 6 ROOP RACHANA ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING IN THE PRESENCE OF REPRESENTATIVES OF BOTH THE PARTIES . SD/- SD/- (SAKTIJIT DEY) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 03.05.2017 V. PAL SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # ( ) / THE CIT(A) 4. # / CIT - CONCERNED 5. & , & , / DR, ITAT, MUMBAI 6. '( / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI