ITO WARD-1(1), THANE V. CHANDRAMOHAN MADANLAL MALHOTRA, MUMBAI

ITA 2857/MUM/2022

AI Insights

The case involves the Income Tax Officer, Ward-1(1) as the appellant and Shri Chandramohan Madanlal Malhotra as the respondent. The dispute centered on the addition of Rs.6,28,680 to the assessee's income for the assessment year 2011-12, which was alleged to be the amount of bogus purchases made from hawala dealers. The Assessing Officer initially added the entire amount to the assessee's income, which was later contested. The CIT(A) reduced the addition to 12.5% of the bogus purchases, aligning with precedents that only the profit element from such purchases should be taxed. The Revenue appealed this decision to the Tribunal, which upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301295 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 03-01-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 10-11-2022
• Other Referred Cases: ITO Vs. Bakshish M Malhotra, M/s. K Kirit & Co. Vs ITO, M/s MST Ceramic World vs ACIT, M/s RJ Traders vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 147; 69C; 143(3); 133(6); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.2857/M/2022 Assessment Year: 2011-12 Income Tax Officer, Ward-1(1), 1 st Floor, Mohan Plaza, Wayale Nagar, Kalyan West, Thane, Maharashtra- 421 301 Vs. Shri Chandramohan Madanlal Malhotra, Shop No.9 & 10, Shankeshwar Complex, Madhavi Compound, Anjurphata, Bhiwandi Road, Bhiwandi, Thane, Maharashtra – 421 302 PAN: AHHPM6409P (Appellant) (Respondent) Present for: Assessee by : None Revenue by : Shri Ashish Kumar Deharia, D.R. Date of Hearing : 04 . 01 . 2023 Date of Pronouncement : 12 . 01 . 2023 O R D E R Per : Kuldip Singh, Judicial Member: The appellant, Income Tax Officer, Mumbai (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 03.08.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2011-12 on the grounds inter-alia that :- ITA No.2857/M/2022 Shri Chandramohan Madanlal Malhotra 2 “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)/NFAC erred in deleting the addition of Rs.5,50,095/ out of the total addition of Rs. 628,680/- made on account of bogus purchases, despite holding that the purchases were not genuine and the assessee failed to prove genuineness of the transactions. 2. On the facts and in the circumstances of the case and in law, Ld. CIT(A)/NFAC erred in deleting the above addition despite the fact that the assessee failed to discharge his onus of proving the purchases. 3. It is respectfully submitted that the addition was made on the basis of information received from Law enforcement agency of the State Government of Maharashtra Le Sale Tax Department. 4. The appellant prays that the order of the Ld. CIT(A)/NFAC, may be set-aside and that of the Assessing Officer be restored. 5. The appellant craves leave to add, ground/grounds, which may be necessary.” 2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are: return filed by the assessee for the year under consideration declaring income of Rs.3,87,367/- was processed under section 143(1) of the Income Tax Act,1961 (for short ‘the Act’). Subsequently on receipt of information from Directorate General of Income Tax (Investigation) (DGIT) (Inv.), Pune that the Sales Tax Department, Mumbai has unearthed a racket qua more than 1935 hawala dealers involved in issuing bogus invoices to allow a trader to claim tax credits and there are more than 37000 beneficiaries who claimed such bogus purchases as well as bogus tax credits. The assessee is found to be one such beneficiary. The assessee is alleged to have taken bogus purchase bills from hawala dealers to the tune of Rs.6,28,680/- detailed as under: Tin of Hawala Dealer Name of Hawala Dealer PAN of Hawala Dealer Asstt. Year Amount in Rs. 27840406595V Karan Enterprises BBGPM0278LT 2011-12 Rs. 6,28,680/- ITA No.2857/M/2022 Shri Chandramohan Madanlal Malhotra 3 Rs. 6,28,680/- 3. The assessee in response to the notice issued under section 142(1) of the Act filed copies of return of income, audited report P&L account and balance sheet as well as ledger extract of the purchases made by him. Declining the contentions raised by the assessee the Assessing Officer (AO) proceeded to disallow the claim of the assessee and made addition of the bogus purchase of Rs.6,28,680/- to the total income of the assessee and thereby framed the assessment under section 143(3) read with section 147 of the Act. 4. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal. 5. Notices of the appeal were sent to the assessee through RPAD which were received back unserved with the report that addressee has left the place of his last address. Revenue department stated to be not in possession of any other address. It appears that the assessee is not interested in prosecuting the present appeal after instituting this appeal in the Tribunal. So we have decided to dispose of this appeal on the basis of material available on record with the assistance of Ld. D.R. for the Revenue. 6. We have heard the Ld. Departmental Representative for the Revenue, perused the orders passed by the Ld. Lower Revenue ITA No.2857/M/2022 Shri Chandramohan Madanlal Malhotra 4 Authorities and documents available on record in the light of the facts and circumstances of the case and case law relied upon. 7. The Ld. CIT(A) after thrashing the facts in the light of the decision rendered by the Tribunal, as relied upon by the assessee proceeded to make the addition at the rate of 12.5% of unproved purchases by returning following findings: “7.11 GOA no. 1,2,3,6 and 8: Addition of Rs.6,28,680/- u/s 69C of the Act. a) The gist of addition made is outlined in para 2 of this order. b) The Appellant has relied on the below mentioned judgments: • Hon'ble ITAT 'F' Bench, Mumbai in ITA No.2126/Mum/2016 for AY- 2009-10 in ITO Vs. Bakshish M Malhotra dated 26.05.2017. • Hon'ble ITAT SMC Bench, Mumbai in ITA No. 6624/6625/6626/Mum/2018 AY-2009-10 to AY-2011-12 in M/s. K Kirit & Co. Vs ITO vide order dated 06.02.2020. • Hon'ble ITAT SMC Bench, Mumbai in ITA No.6623/Mum/2018 for A.Y-2009-10 in M/s MST Ceramic World vs ACIT vide order dated 05.05.2020. • Hon’ble ITAT SMC Bench, Mumbai in ITA No.4284/4285/Mum/2018 for A.Y. 2010-11 and A.Y. 2011-12 in M/s RJ Traders vs. ITO vide order dated 12.06.2019. c) The gist of these judgements is as under: • AO received information from Inv. Wing to the effect that Sales Tax Deptt., Mumbai has unearthed racket involving certain dealers who issue bogus sale invoice to various traders and such information revealed that assessee had also effected purchases from 4 Hawala parties to extent of Rs. Xxxx. • AO issued notices u/s 133(6) which returned back unserved. • Assessee was asked to produce these parties but they were not produced before the AO. • AO held that 100% of purchases of Rs. XXX made from these 4 parties as unproved and added 100% of purchase amount u/s 69C of the Act. • CIT(A) retained addition @ 12.5% of purchases of Rs. XXXX and deleted the balance. He concluded that once sales are not in doubt the only logical inference is that assessee made purchases from open market and obtained invoices from Hawala parties as accommodation entries. By doing so the assessee would have saved sales Tax VAT etc. The entire amount of purchase cannot be added to total income but only profit element relatable to such unproved purchases could be added. Relying on judgment of Hon'ble Gujarat High Court on Simit ITA No.2857/M/2022 Shri Chandramohan Madanlal Malhotra 5 Seth in 356 ITR 451 the CIT(A) proceeded to estimate profit on such unproved purchases @ 12.5%. • The Hon'ble ITAT held that CIT(A) made no mistake in restricting addition to 12.5% of unproved purchases instead of entire amount of purchases. It was held that sales declared by assessee have not been doubted by AO. The verifiability of actual purchases effected by assessee is not possible. Therefore, resort to estimation in such a situation is not erroneous. Thus, the estimation made by CIT(A) @ 12.5% of unproved purchases was held to be reasonable and was confirmed. d) In all the four judgments relied upon by Appellant [As per para 7.11(b), the hon'ble ITAT upheld the action of CIT(A) in restricting addition to 12.5% of unproved purchases instead of entire amount of unproved purchases. e) The facts of the present case are identical to the facts of the judgments of Hon'ble Jurisdictional ITAT, Mumbai Bench relied upon by Appellant. Therefore, respectfully following the judgments of Hon'ble Jurisdictional ITAT, the addition made by the AO u/s 69C of the Act is upheld to the extent of Rs. 78,585/- (12.5% of Rs.6,28,680/-) and relief of Rs. 5,50,095/- is allowed to appellant. GOA no. 1,2,3,6 and 8 are partly allowed.” 8. Bare perusal of the impugned order passed by the Ld. CIT(A) goes to prove that the same has been passed on the basis of facts brought on record by the assessee himself that he has no evidence to substantiate the purchases made from bogus entities. The Ld. CIT(A) has taken reasonable view in the light of the settled principle of law that where sales are not in dispute profit element on the basis of profit earned in genuine purchases may be added on bogus purchases also. The assessee despite service has not preferred to come up before the Tribunal to controvert the findings returned by the Ld. CIT(A) nor he has come up before the Tribunal to produce any evidence, nor he has brought on record his gross profit on the genuine sales during the earlier years. ITA No.2857/M/2022 Shri Chandramohan Madanlal Malhotra 6 9. So finding no illegality or perversity in the impugned order passed by the Ld. CIT(A) appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 12.01.2023. Sd/- Sd/- (S. RIFAUR RAHMAN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 12.01.2023. * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai.