NITESH CHUNILAL SHAH, MUMBAI V. ITO 19(2)(4) VINAYAK RAY, MUMBAI

ITA 2840/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5826 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 04-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Keywords: Bogus purchase; Accommodation entries
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 2840 /MUM/201 8 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH JHAVERI METAL, 40, NANUBHAI DESAI ROAD, MUMBAI 400 004 PAN: AAZPS 4489 E V. INCOME TAX OFFICER 19(2 )(4) MITTAL COURT , MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI KUSUM BANSAL DATE OF HEARING : 21 .02 .2019 DATE OF PRONOUNCEMENT : 12 .04 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 52, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 25.12.2017 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE IS IN RESPECT OF CONFIRMING THE DISALLOWANCE MADE @9% OF THE BOGUS PURCHASES BY THE ASSESSING OFFICER. 2 ITA NO. 2840/MUM/2018 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH 3. WHEN THE APPEAL CAME UP FOR HEARING ON 11.02.2019 , ASSESSEES COUNSEL REQUESTED FOR TIME AND THE APPEAL WAS POSTED FOR HEARING ON 21.02.2019 AND ON WHICH DATED NONE APPEARED ON BEHALF OF ASSESSEE. ON HEARING LD. DR THIS APPEAL IS BEING DISPOSED OFF. 4. THE ONLY ISSUE IS THAT THE LD. CIT(A) ERRED IN SUSTAINING THE PROFIT ELEMENT @ 9% ON ALLEGED BOGUS PURCHASES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT REQUIRED THE ASSESSEE PROVE THE GENUINENESS OF THE PURCHASES MADE FROM SIX DEALERS AS REFERRED TO IN THE ASSESSMENT ORDER , A S THESE DEALERS WERE REPORTED TO BE ONLY ACCOMMODATION ENTRY PROVI DE R S BASED ON THE REPORT OF DGIT(INV.) WING AND INFORMATION FROM INVESTIGATION DEPARTMENT OF THE SALES TAX DEPARTMENT OF MAHARASHTRA. ASSESSING OFFICER ALSO ISSUED NOTICES U/S. 133(6) OF THE ACT TO ALL THESE DEALERS AND THE NOTICES RETURNED UNSERVED WITH THE REMARK THAT EITHER LEFT, NO SUCH ADDRESS AND NOT KNOWN . 5. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS T HE ASSESSEE PRODUCED PURCHASE BILLS AND LEDGER ACCOUNTS, BANK STATEMENTS EVIDENCING PAYMENTS MADE THROUGH BANKING CHANNELS, AND CONTENDED THAT ALL THESE PURCHASES WERE MADE IN THE REGULAR COURSE OF BUSINESS, PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES, GOODS HAVE BEEN PURCHASED AND 3 ITA NO. 2840/MUM/2018 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH SOLD, ASSESSEE MAINTAINS STOCK REGISTER AND THEREFORE THE PURCHASES MADE BY THE ASSESSEE FRO M THESE DEALERS ARE GENUINE. 6. NOT CONVINCED WITH THE EVIDENCES FURNISHED BY THE ASSESSEE THE ASSESSING OFFICER OPINED THAT BOOKS OF ACCOUNTS OF THE ASSESSEE, THE PURCHASES MADE FROM THE ABOVE MENTIONED PARTIES REMAIN UNVERIFIABLE IN THE ABSENCE OF THE CONFI RMATIONS FROM THE DEALERS AND THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. HE FURTHER OBSERVED AS UNDER: - 5.5. THE SUBMISSION / DETAILS FURNISHED BY THE ASSESSEE AND ALSO THE MATERIALS AVAILABLE ON RE CORD HAVE BEEN CAREFULLY PERUSED AND CONSIDERED. FROM THE ABOVE DISCUSSIONS, THE FOLLOWINGS FACTS EMERGE - (I) THE SALE TAX DEPARTMENT HAS CONDUCTED INDEPENDENT ENQUIRES IN EACH OF THE NON GENUINE' PARTIES AND CONCLUSIVELY PROVED THAT THESE - PARTIES ARE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY. THE PARTIES ARE ISSUING BILLS WITHOUT DELIVERING ANY GOODS AND SERVICES. (II) INDEPENDENT ENQUIRIES / INVESTIGATIONS HAVE BEEN CARRIED OUT BY THIS OFFICE UNDER THE I.T. ACT AND THE ASSESSEE HAS BEEN DULY CONFRONTED WITH THE SAME. EVIDENTLY, THE ASSESSEE HAD ADOPTED A MODUS OPERANDI TO REDUCE HIS TRUE PROFITS BY INFLATING HIS EXPENSES INCLUDING PURCHASE EXPENSES BY TAKING ACCOMMOD ATION ENTRIES FROM SUCH PARTIES. (III) THE ASSESSE WAS ASKED TO PRODUCE THE SAID 'NON GENUINE DEALERS' FOR EXAMINATION, BUT THE ASSESSE FAILED TO DO SO. THUS, IN THE BOOKS OF ACCOUNTS OF THE ASSESSE, THE PURCHASES TO THE EXTENT MADE FROM THE ABOVE SAID PAR TIES REMAINED UNVERIFIABLE AND HENCE I ARRIVE AT A CONCLUSION THAT THE PURCHASES SHOWN BY THE ASSESSE IN THE BOOKS OF ACCOUNTS ARE INFLATED AND NON - GENUINE PURCHASES ARE DEBITED TO TRADING ACCOUNT TO SUPPRESS THE TRUE PROFITS TO BE DISCLOSED TO THE DEPARTM ENT. (IV) THE ASSESSE COULD NOT FILE THE VITAL DOCUMENTS SUCH AS DELIVERY CHALLANS, TRANSPORT RECEIPTS, OCTROI RECEIPT FOR PAYMENT OF OCTROI DUTY, RECEIPT OF WEIGHBRIDGE FOR WEIGHING OF GOODS, EXCISE GATE PASS, GOODS INWARD REGISTER MAINTAINED AT GODOWN/ WAREHOUSE /STORAGE HOUSE ETC. WHATEVER DOCUMENTS PLACED ON RECORD IS NOT CAPABLE OF SUSTENANCE. THE ITEMS SHOWN TO HAVE PURCHASED FROM THE SAID PARTIES ARE OF SUCH IN NATURE THAT THEY REQUIRE SEPARATE TRANSPORTATION. HENCE THE MODE OF TRANSPORTATION IS NOT EXPLAINED PROPERLY. (V) THE ONUS WAS UPON THE ASSESSEE TO ESTABLISH THE GENUINENESS OF PURCHASES MADE BY THE ASSESSE. 4 ITA NO. 2840/MUM/2018 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH (VI) MERE FILING OF DETAILS IN SUPPORT OF PURCHASES AND PAYMENT THROUGH ACCOUNT PAYEE CHEQUE CANNOT BE CONCLUSIVE IN A CASE WHERE GENUINENESS OF THE TRANSACTION IS IN DOUBT. PAYMENT BY ACCOUNT PAY CHEQUES ARE NOT SACROSANCT. (VII) IF ALL THE EVIDENCES POINT TO THE FACT THAT NO ACTUAL GOODS WERE SUPPLIED BY THE ABOVE PARTIES, THEN THE ARGUMENT OF ASSESSEE THAT IT PURCHASED GOODS IN GOOD FAITH IS NOT TENABLE. THUS, FROM THE ABOVE ANALYSIS OF THE FACTS, IT IS CRYSTAL CLEAR THAT THE PURCHASES MADE BY THE ASSESSEE FROM THE ABOVE PARTIES AND CLAIMED AS EXPENSES IN HIS PROFIT AND LOSS ACC OUNT ARE NOT GENUINE. THEREFORE, SINCE THE PURCHASES TO THAT EXTENT REMAINED UNVERIFIABLE, THE BOOKS OF ACCOUNTS ARE REJECTED BY INVOKING PROVISIONS OF SECTION 145(3)OF THE I. TAX ACT 6. NOW, IN THE GIVEN FACE AND CIRCUMSTANCE OF THE CASE, IT IS HELD THAT T HE ASSESSEE HAS INDULGED IN NON - GENUINE TRANSACTION. THE INTENTION OF INDULGING IN SUCH ACTIVITY IS TO SUPRESS THE TRUE PROFITS AND TO REDUCE THE TAX LIABILITY. THEREFORE, AN ADDITION ON ACCOUNT OF A HIGHER MARGIN OF PROFIT WOULD BE FAIR AND EQUITABLE. HEN CE, FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH (2013) REPORTED IN 356 ITR 451 (GUJ.) AND ALSO GIVING DUE CONSIDERATION TO THE FACT THAT THE ASSESSE HAS RECORDED SUCH PURCHASES IN THE BOOKS OF ACCOUNT, I AM OF THE CONSIDERED OPINION THAT, IT WOULD BE JUST AND FAIR, IF PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES IS TAKEN AS THE PROFIT EARNED FROM PURCHASES SHOWN TO HAVE BEEN MADE FROM THE ABOVE MENTIONED NON - GENUINE PARTIES. THEREFORE, AN AMOUNT OF RS. 1 ,04,323/ - BEIN G 12.5% OF THE TOTAL NON - GENUINE PURCHASES OF RS. 88,34,583/ - IS AD DED TO THE TOTAL INCOME OF THE ASSESSE AS PROFIT EARNED FROM SUCH PURCHASES. PROCEEDINGS UNDER 274 R.W.S 271(L)(C) ARE SEPARATELY INITIATED FOR FURNISHING INACCURATE PARTICULA RS OF INCOME C HARGEABLE TO TAX. TH US ASSESSING OFFICER ESTIMATED THE PROFIT ELEMENT FROM SUCH PURCHASES @12.5% AND THE SAME WAS DISALLOWED. 7. ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, HOWEVER LD.CIT(A) RE STRICTED THE PROFIT ELEMENT ON SUCH PURCHASES TO 9% AS AGAINST 12.5% MADE BY THE ASSESSING OFFICER. 8. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 ITA NO. 2840/MUM/2018 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH 9. HEARD THE DEPARTMENTAL REPR ESENTATIVE AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES, I FIND THAT THE ASSESSEE CO U LD N EITHER PRODUCE THE CONFIRMATIONS NOR THE PARTIES FOR VERIFICATION. LD. CIT(A) AND ASSESSING OFFICER HELD THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE CLAIM OF THE PURCHASES. THE LD. CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS OF THE ASSESSING OFFICER HELD THAT ASSESSING OFFICER IS JUSTIFIED IN ESTIMATI NG THE PROFIT ELEMENT ON PURCHASES. HOWEVER, HE RESTRICTED THE ADDITION TO 9% OF THE PURCHASES FROM THESE DEALERS OBSERVING AS UNDER: - 6.2 IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT ALL THE DETAILS OF SALES AND PURCHASES OF GOODS INCLUDING NAMES AND ADDRESSES OF THE SUPPLIERS ETC. WERE FURNISHED TO THE AO AND ALL THE PAYMENTS HAD BEEN MADE BY CHEQUE. MOREOVER, A CHART GIVING DETAILS OF THE PURCHASES AND A CORRESPONDING SALES WAS ALSO SUBMITTED. THEREFORE, IT WAS CONTENDED BY THE ASSESSEE THAT THE ACTION OF THE AO OF MAK ING AN ADDITION OF RS 11,04,323/ - BY ESTIMATING THE PROFIT @ 12.5% OF THE ALLEGED BOGUS PURCHASES IS NOT CORRECT. THE ASSESSEE ALSO EXPLAINED DURING THE COURSE OF APPELLATE PROCEEDINGS THAT THE AO HAS ADOPTED THE RATE OF 12.5% BY RELYING UPON THE DE CISION ITAT, AH ME DABAD IN THE CASE OF SIMIT P SHETH (ITA NO 3238 & 3293/AHD/2009) AND WHICH HAS ALSO BEEN APPROVED BY THE HON'BLE GUJARAT HIGH COURT. IT WAS POINTED OUT BY THE ASSESSEE THAT IN PARA 7 OF THE SAID ORDER OF THE HON'BLE ITAT, IT HAS BEEN NOTED THAT THE MALPRACTICE OF BOGUS PURCHASES IS MAINLY TO SAVE 10% SALES TAX. AFTER CONSIDERING THIS, THE HON'BLE ITAT ESTIMATED THE ADDITIONAL PROFIT ON THE ALLEGED BOGUS PURCHASES @ 12.5%. IT WAS THEREFORE SUBMITTED BY THE ASSESSEE THAT SINCE AS AGAINST 10% SALES TAX THEN APPLICABLE IN GUJARAT, THE RATE OF SALES TAX IN MAHARASHTRA IS OF ONLY 4%, THEREFORE THE RATE APPLIED BY THE AO OF 12.5% IS ON THE HIGHER SIDE. 6.3 THE CONTENTIONS OF THE ASSESSEE HAVE BEEN DULY CONSIDERED. IT IS A FACT THAT THE SAID ALLEGED HAWALA SUPPLIERS WERE FOUND TO BE NON - EXISTENT AT THE STATED ADDRESSES. THE ASSESSEE COULD NEITHER PROVIDE THEIR LATEST ADDRESSES NOR PRODUCE THE PARTIES BEFORE THE AO. HOWEVER, THE ASSESSEE WAS IN A POSITION TO RECONCILE THE PURCHASES FROM THE ALLEGED HA WALA SUPPLIERS WITH THE CORRESPONDING SALES. THEREFORE, THE ACTION OF THE AO OF CONCLUDING THAT THE SAID PURCHASES HAVE BEEN MADE FROM THE GREY MARKET CANNOT BE FAULTED. SINCE THE ASSESSES WAS IN A POSITION TO RECONCILE THE ALLEGED HAWALA PURCHASE WITH THE CORRESPONDING SALES BOOKED BY IT, THE AO RATHER THAN MAKING AN ADDITION OF THE ENTIRE AMOUNT OF THE ALLEGED HAWALA PURCHASES PROCEEDED TO ESTIMATE THE ADDITIONAL PROFIT @ 12.5%. HOWEVER, THERE IS SOME FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE RATE ADOPTED BY THE AO OF 12.5% AFTER CONSIDERING THE DECISION OF THE HON'BLE ITAT AHM EDABAD IN THE CASE OF SIMIT P SHETH (SUPRA) IS ON THE HIGHER SIDE, CONSIDERING THAT THE SALES TAX THEN PREVALENT AT GUJARAT WAS OF 10% AS AGAINST SALES TAX OF 4% IN MAHARASHTR A. AFTER CONSIDERING THE FACTUAL POSITION IN THE CASE OF THE ASSESSEE INCLUDING THE NATURE OF BUSINESS AND THE SALES TAX RATE PREVALENT FOR THE RELEVANT YEAR, IT WILL BE APPROPRIATE 6 ITA NO. 2840/MUM/2018 (A.Y: 2009 - 10) SHRI NITESH CHUNILAL SHAH IF THE RATE OF 12.5% ADOPTED BY THE AO IS SCALED DOWN TO 9%. ACCORDINGLY, GROUND NOS. 3 TO 5 OF THE APPEAL ARE PARTLY ALLOWED . 10. ON A CAREFUL READING OF THE FINDINGS OF THE LD. CIT(A), I DO NOT SEE ANY VALID REASON TO INTERFERE WITH THE DECISION OF THE LD. CIT(A). THUS, I SUSTAIN THE ORDER OF THE LD.CIT(A) AND REJECT THE GROUND S RAISED BY THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH APRIL , 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 12 / 0 4 / 201 9 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM