ASST CIT 20(3), MUMBAI V. MANKESHWAR MECHANICAL WORKS, MUMBAI

ITA 2623/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2285 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 27-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Cost of acquisition; Accommodation entries; Set aside
• Section: 143(3); 142(1); 37(1); 143(1); 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 2623 /MUM/201 8 ( / ASSESSMENT YEAR: 20 09 - 10 ) ACIT 20(3) CIRCLE 20(3) ROOM NO.615, 6 TH FLOOR, PIRAMAL C HAMBERS, PAREL MUMBAI - 400012 . / VS. M/S.MANKESHWAR MECHANICAL WORKS MANKESHWAR BUILDING, 110 B.N. PALI MARG, REAY ROAD, MUMBAI - 400033. ./ ./ PAN/GIR NO. : ABCFS2901H ( / APPELLANT ) .. ( / RESPONDE NT ) / DATE OF HEARING : 16 / 0 5/ 201 9 / DATE OF PRONOUNCEMENT : 25 /0 6 / 201 9 / O R D E R PER A MARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 25 . 0 1 .201 8 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 32 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 09 - 1 0 . 2 . THE REVENUE HAS RAISED T HE FOLLOWING GROUNDS: - ' 1 . 'ON THE FACTS OF THE CASE IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.73,84,597/ - AND CONFIRMING DISALLOWANCE @ 12.5% AS AGAINST DISALLOWANCE @ 100% OF BOGUS PURCHASES OF RS. 84,39,539/ - MADE U/S 37(1) OF THE I.T. ACT. REVENUE BY : SHRI R . SINDHU (SR. A R) ASSESSEE BY: SHRI SHAILESH JOSHI ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 2 ' 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT ASSESSES HAS NOT MAINTAINED THE STOCK REGISTER ON THE GROUND THAT MATERIAL IS DIRECTLY CON SUMED AT SITE , THEREFORE, THERE ARE NO RECORDS OF INWARDS AND OUTWARDS ENTRIES OF MATERIAL , HOWEVER, OPINIONED THAT THE ASSESSES CASE IS MORE AKIN TO THE CASE DECIDED BY THE HON'BLE GUJARAT HIGH COURT OF SIMIT P SETH, IN WHICH ASSESSEE HAD PRODUCED THE R ECORD OF INWARD AND OUTWARD ENTRIES OF MATERIAL. ' 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF BOGUS PURCHASES @ 12.5% WHEREAS, HON'BLE SUPREME COURT IN THE CASE OF N.K. PROTEI NS LTD VS DCIT (2017) HAS UPHELD THE 100% DISALLOWANCE OF BOGUS PURCHASES AS ORDERED BY THE HON'BLE GUJARAT HIGH COURT.' 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 . 09.2009 DECLARING TOTAL INCOME TO THE TUNE OF RS .43,84,044 / - FOR THE A.Y.2009 - 10 . THEREAFTER, THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY. THEREAFTER, THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING TOTAL INCOME TO THE TUNE OF RS.46,15,964/ - . AN INFORMATION WAS REC EIVED FROM THE DGIT, INV MUMBAI THAT THE ASSESSEE HAS TAKEN THE BOGUS ENTRIES OF PURCHASE, THEREFORE, THE CASE OF THE ASSESSEE WAS REOPENED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT. THE ASSESSEE WAS FOUND INDULGING IN TAKING THE ENTRY OF BOGUS PURCHASE IN SUM OF RS.84,39,539/ - FROM THE FOLLOWING PARTIES.: NAME OF THE PARTY TRANSACTION AMOUNT ENTECH ENTERPRISE 6,18,623 ARIHANT TRADERS 9,10,652 SIVMANI TRADERS P. LTD. 7,46,751, BRIGHT CORPORATION 749,187 G.M. IN TERNATIONAL 5,00,760 ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 3 SHREE NAKODAJI IMPEX 7,28,764 PAWAN ENTERPRISES 12,52,673 MAHAVIR ENTERPRISES 6,84,729 GHATALIA STEELS/DIVINE ENTERPRISES 2,52,595 TOTAL 64,44,73 THEREAFTER, NOTICE /S 143 (2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE AS SESSEE. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO RAISED THE ADDITION OF THE BOGUS PURCHASE OF RS.84,39,539/ - . THE INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.1,30,55,503/ - . F EELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) WHO RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE AND PARTLY ALLOWED THE CLAIM OF THE ASSESSEE , THE REVENUE WAS NOT SATISFIED , THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO S .1 & 2 4. ALL THE ISSUE S ARE I N CONNECTION WITH THAT THE RESTRICTION OF THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE BY THE CIT(A) . THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURC HASE WHEREAS WHOLE ADDITION OF BOGUS PURCHASE IS LIABLE TO BE MADE IN THE INTEREST OF JUSTICE , THEREFORE, THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE AND IS LIABLE TO BE SET ASIDE. AT THE TIME OF ARGUMENT, THE LD. REPRESENTATIVE OF THE REVENUE HAS RELIED UPON THE CASE TITLED AS N.K. PROTEIN LTD. VS. DCIT (2017) SUPREME COURT. ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 4 GOING FURTHER, WE DEEM IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 2.4 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. GROUND NO.1 TO 12 OF APPEAL AR E IN RESPECT OF THE ACTION OF THE LD. AO IN NOT ACCEPTING THE PURCHASES OF RS.84,39,5391 - AS GENUINE PURCHASES BASED ON THE INFORMATION RECEIVED FROM INCOME TAX AUTHORITIES. UNDER SIMILAR CIRCUMSTANCES THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT P SETH, 2013 (356 ITS 451) HAD ON OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASES TO MEET THE END OF JUSTICE. THE HEAD - NOTE OF THE DECISION IS REPRODUCED AS UNDER - 'SECTION 145 OF THE INCOME - TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [ BOGUS PURCHASE* ASSESSMENT YEAR 2006 - 17 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND THAT SOME ALL EGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS HE ACCORDINGLY, ADDED ENTIRE AMOUNT PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS ) ) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30% OF PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER SUSTAINED ADDITION TO EXTENT OF 125% - WHETHER SINCE PURCHASES WE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESSEE INCOME - HELD, YES WHETHER HENCE, ORDER OF TRIBUNAL NEE DED NO IN TERFERENCE - HELD, YES PARAS 6,7 & 9 IN FAVOUR OF ASSESSEE'. [EMPHASIS SUPPLIED] BASED ON THE EVIDENCE IN HAND IN THE FORM OF A REPORT FROM DIT (INV), MUMBAI THE AO HAS ASKED THE ASSESSEE TO PRODUCE THE PARTIES ALONG WITH EVIDENCE IN ORDER TO VERIFY THE GEN UINENESS OF THE PURCHASE TRANSACTIONS. THE ASSESSEE INSTEAD SUBMITTED THE LEDGER ACCOUNTS OF THE ABOVE PARTIES AND BANK STATEMENTS EXTRACTS EVIDENCING THE PAYMENTS THROUGH BANK CHEQUE. IN THIS CASE, THE ONUS LIES ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES AND THE ASSESSEE HAD TO PROVE THAT THE ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 5 SUPPLIERS WERE GENUINELY EXISTING. THE ASSESSEE HAS NOT MADE ANY EFFORTS TO DISCHARGE THE ONUS AND FAILED TO PRODUCE ANY OF THE PARTIES, IN SPITE OF THE OPPORTUNITIES GIVEN BY THE LD.AO. THE ASSESSEE CO ULD NOT SATISFACTORILY SUBSTANTIATE AND ESTABLISH THE FACT THAT THERE WERE GENUINE PURCHASES FROM THESE PARTIES. THERE WAS A REPORT FROM SIT(INV) STATING THAT ALL THE SELLER PARTIES AS PER THE LIST SUPPLIED BY THEM ARE BOGUS INCLUDING THE PARTIES APPEARING IN THE BOOKS OF THE APPELLANT COMPANY AND AS STATED ABOVE, THE ASSESSEE IS NOT MADE COUNTER SUBMISSION TO SHOW THAT THOSE PARTIES ARE 'EARLY EXISTING. THE AO HAS BROUGHT TO TAX THE BOGUS PURCHASES BY ADOPTING THE METHOD @ 25% OF SUCH PURCHASES KEEPING IN VIEW THE GAIN MADE BY THE APPELLANT DUE TO PURCHASES OF MATERIAL IN GREY MARKET WITHOUT BILLS AND ADJUSTING THE PURCHASES WITH THE INVOICES TAKER FROM THE HAWALA TRADERS UNDER DISCUSSIONS. UNDER THESE CIRCUMSTANCES THE AO CANNOT BE FOUND FAULT ON THIS COUN T. EVEN THOUGH THE AO COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE FROM HAVE CAME BACK TO THE APPELLANT, THE ACTIVITIES OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY IS NET UNHEARD OF. FURTHER, THE INVESTIGATIONS CARRIE D OUT BY THE SALES TAX DEPARTMENT, OTHER GOVERNMENT AGENCY, WITH REGARD TO VAT VIOLATION CANNOT BE LOST SIGHT OF FURTHER AS SOME OF THE NAMES OF THE SO - CALLED BOGUS SELLERS OUT OF THE IS SUPPLIED BY THE SALES TAX DEPARTMENT ARE APPEARING IN THE BOOKS OF TH E APPELLANT COMPANY. THE LINK OF INVOLVEMENT OF APPELLANT COMPANY GETTING BOGUS TONS IS ESTABLISHED. EVEN THOUGH THERE ARE CATENA OF CASES DECIDED BY THE JURISDICTIONAL ITAT WHISH HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN AL L THE CASES AS THEY WERE DECIDED AS PER FACTS AND CIRCUMSTANCES OF THAT PARTICULAR CASE BEFORE THEM. I AM OF THE OPINION THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE MORE AKIN TO THE CASE DECIDED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUPRA). THEREFORE, I HEREBY CONFIRM THE DISALLOWANCE TO THE EXTENT 12.5% AMOUNTING TO RS.10,54,942/ - OF THE SO - CALLED BOGUS PURCHASES MADE BY THE LD AO. THE APPELLANT SUCCEEDS PARTIALLY AND GETS A RELIEF OF RS.73,84.597/ - . THIS GROUND IS PAR TLY ALLOWED. 5. ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY ON THE BASIS OF THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH, 2013(356 ITR 451). THE CIT(A) HAS CONSIDERED TH E PROFIT EMBEDDED TO THE BOGUS PURCHASE. THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE REVENUE IS DISTINGUISHABLE ON THE ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 6 FACTS. WE FIND IT JUSTIFIABLE THAT THE PROFIT EMBEDDED TO THE BOGUS PURCHASE IS LIABLE TO BE ADDED TO THE INCOME OF THE ASSESSEE. SI NCE THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY CIT(A) ON THE BASIS OF DECISION OF SIMIT P. SHETH (SUPRA). MOREOVER, WE ALSO NOTICE D THAT THE CASE OF THE ASSESSEE FOR THE A.Y.2010 - 11 ON THE SAME POINT OF CONTROVERSY HAS BEEN ADJUDICATED BY HONBLE IT AT IN THE ASSESSEES OWN CASE IN ITA. NO. 1223/M/2015 DATED 09.11.2017 IN WHICH THE ADDITION OF BOGUS PURCHASE HAS BEEN RESTRICTED TO THE EXTENT OF 12.5% , THEREFORE, WE FIND JUSTIFIABLE TO RESTRICT THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE . THE CASE OF THE ASSESSEE IS DULY BEEN COVERED BY THE DECISION OF HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA. NO.1223/M/2015 DATED 09.11.2017 , THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE AT THIS APPELLATE STAGE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE D ISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 25 /06 /2019 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 25 /06 /2019 V IJAY ITA NO. 2623 /M/201 8 A.Y.20 09 - 10 7 / 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// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI