SHRI. ABHISHEK VIMALCHAND JAIN, MUMBAI V. ITO 20(1)(1), MUMBAI

ITA 282/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8106 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO.282/MUM/2019 ( ASSESSMENT YEAR: 2010-11) SHRI ABHISHEK VIMALCHAND JAIN, A201, VIKAS APAERTMENT, DADABHAI CHAMAR BAUG ROAD, PAREL, MUMBAI- 400012. VS. I.T.O. 20(1)(1) MUMBAI. PAN/GIR NO. ADEPJ 9316 M (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI VIMAL PUNMIYA (AR) REVENUE BY SHRI AKHTAR H ANSARI (DR) DATE OF HEARING 21/01/2020 DATE OF PRONOUNCEMENT 22/01/2020 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 18/10/2018 OF LD. CIT(A)-32, MUMBAI FOR THE A.Y. 20 10-11 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT, THE ACT). 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE RELATES T O ADDITION OF 25% IN RESPECT OF ALLEGED BOGUS PURCHASES MADE BY THE A .O. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF TRADING OF LIQUOR. DURING THE COURSE OF SCRUTINY ASSESSMENT, T HE A.O. FOUND THAT THE ITA NO. 282/MUM/2019 SHRI ABHISHEK VIMALCHAND JAIN VS ITO 2 ASSESSEE HAS TAKEN BOGUS PURCHASE BILLS WITHOUT DEL IVERY OF ACTUAL GOODS AS PER THE INFORMATION RECEIVED FROM THE DGIT(INV.) ,MUMBAI. WITH REGARD TO ALLEGED BOGUS PURCHASES, THE A.O. MADE AD DITION BY ESTIMATING PROFIT @ 25% OF SUCH ALLEGED BOGUS PURCHASES WHICH WAS CONFIRMED BY THE LD. CIT(A), AGAINST WHICH THE ASSESSEE IS IN FU RTHER APPEAL BEFORE THE ITAT. 4. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS CON TENDED THAT THE ISSUE WITH REGARD TO EXTENT OF ADDITION IN CASE OF BOGUS PURCHASES IS COVERED BY THE DECISION OF THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. IN I TA NO. 1004 OF 2016 ORDER DATED 11/02/2019, ACCORDING TO WHICH AD DITION CAN BE MADE ONLY TO THE EXTENT OF DIFFERENCE BETWEEN THE G.P. D ECLARED IN RESPECT OF ALLEGED BOGUS PURCHASES VIS A VIS G.P. DECLARED IN RESPECT OF NORMAL PURCHASES. 5. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE ASSESSEE C OULD NOT ESTABLISH GENUINENESS OF PURCHASES, THEREFORE, THE A.O. WAS J USTIFIED IN MAKING ADDITION BY ESTIMATING PROFIT @ 25% ON THE SAME. 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE ADDITION HAS BEEN MADE BY THE A.O. BY ESTIMATING PROFIT OF 25% ON THE PURCHASES ALLEGED ITA NO. 282/MUM/2019 SHRI ABHISHEK VIMALCHAND JAIN VS ITO 3 TO BE BOGUS AS PER INFORMATION RECEIVED FROM THE SA LES TAX DEPARTMENT THROUGH DGIT(INV.), MUMBAI. AFTER CONSIDERING ALL T HE FACTS, THE A.O. MADE ADDITION OF RS. 17,43,885/- BEING 25% OF ALLEG ED PURCHASES AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A .O. BEING 25% OF ALLEGED PURCHASES OF RS. 69,75,542/-. FROM THE RECO RD, I FOUND THAT BEFORE THE LOWER AUTHORITIES, THE ASSESSEE HAS SUBM ITTED FOLLOWING DOCUMENTS/INFORMATION AND INFORMATIONS: 1. ALL BILLS OF PURCHASES WITH DELIVERY CHALLANS 2. ALL PAYMENT MADE THOUGHT ACCOUNT PAYEE CHEQUE. 3. SUPPLIER PROVIDED ALL IDENTITY TO BANK FOLLOWING KYC NORMS. 4. ALL SALES OF ASSESSEE WERE ACCEPTED. 5. WITHOUT PURCHASES SALES CANNOT TAKE PLACE. 6. ASSESSEE ACCOUNTS DULY AUDITED BY TAX AUDITOR AN D VAT AUDITOR. 7. DELIVERY CHALLAN OF ALL PURCHASES ARE DULY MAINT AINED. 8. ASSESSEE PURCHASES ARE SOLD TO CUSTOMERS AND BAL ANCE ARE LYING AS CLOSING STOCK. 9. ASSESSEE PURCHASES ARE SOLD TO CUSTOMERS AND COR RELATION GIVEN BY ASSESSEE. 10. ALL PURCHASES BILLS ALSO HAD SHOWN VAT AMOUNT WHICH IS DULY PAID BY ASSESSEE TO SUPPLIER. 11. VAT IS PAID BY US TO THE MAHARASHTRA GOVERNMENT . 12. THERE IS NO EVIDENCE THAN CASH RECEIVED BACK BY ASSESSEE. 13. ASSESSING OFFICER MADE ALLEGATION THAT ASSESSEE REDUCED TRUE PROFIT THROUGH ALLEGED PURCHASES. IF T HE ASSESSING OFFICER CONTENTION IS ACCEPTED THAN IT WI LL LEAD TO UNEXPECTED GP WHICH WILL BE UNPRACTICAL. ITA NO. 282/MUM/2019 SHRI ABHISHEK VIMALCHAND JAIN VS ITO 4 I FOUND THAT THE A.O. MERELY RELIED ON THE INFORMAT ION FROM THE SALES TAX DEPARTMENT. THUS, I FOUND THAT THE ADDITION HAS BEEN MADE MERELY BY RELYING ON THE INFORMATION FROM SALES TAX DEPART MENT, CORRESPONDING PURCHASES HAS NOT BEEN DOUBTED NOR BOOKS OF ACCOUNT OF WERE REJECTED. WITH RESPECT TO ISSUE REGARDING ADDITION IN RESPECT OF BOGUS PURCHASES, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. IN ITA NO. 1004 OF 2016 VI DE ITS ORDER DATED 11/02/2019 HAVE HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUE STION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIR E PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOM E OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT T HE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DIS CREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDIT IONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT TH E SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD.. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGM ENT THE COURT HELD AND OBSERVED AS UNDER- ITA NO. 282/MUM/2019 SHRI ABHISHEK VIMALCHAND JAIN VS ITO 5 SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY TH E ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD AD MITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURIN FINANCIAL YEAR 1997- 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESS EE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REV ENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO A CCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDU CE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROF IT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/WHI CH COMES TO RS.2098.62 1.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98.621.88 AS G ROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSW ERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR O F THE REVENUE.' 7. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 HAS HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIRMED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISION OF HONBLE GUJAR AT HIGH COURT IN THE CASE OF SMITH P.SETH (SUPRA). WE HAVE CONSIDERED THE RIVAL CONTENTIONS ITA NO. 4192/MUM/2018 AND ARE OF THE VIEW THAT HON'BLE BOMB AY HIGH COURT IN THE CASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPR A) HAS CONSIDERED THIS ISSUE AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT OF DIFFERENTIAL PERC ENTAGE AS DECLARED ON THE BOGUS PURCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO ACCORDINGLY. 8. CONSIDERING THE ABOVE DECISION OF THE HONBLE BO MBAY HIGH COURT, THE ADDITION IS TO BE CONFINED TO THE DIFFERENCE OF G.P. RATE DECLARED IN RESPECT OF GENUINE PURCHASES VIS A VIS BOGUS PURCHA SES. IN THE INSTANT ITA NO. 282/MUM/2019 SHRI ABHISHEK VIMALCHAND JAIN VS ITO 6 CASE, I FOUND THAT ON NORMAL PURCHASES, THE ASSESSE E HAS DECLARED G.P. AT 5.10% WHEREAS ON BOGUS PURCHASES, THE ASSESSEE H AS DECLARED G.P. @ 4.05%, THUS, THE DIFFERENCE IN GROSS PROFIT WORKS OUT TO BE 1.05%. RESPECTFULLY FOLLOWING THE PROPOSITION OF LAW AS LA ID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, I DIRECT THE A.O. TO RES TRICT THE ADDITION BY APPLYING GROSS PROFIT RATE OF 1.05% IN PLACE OF 25% AS MADE BY THE A.O. I DIRECT ACCORDINGLY. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY, 2020. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 22/01/2020 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//