ITO 6(3)(3), MUMBAI V. KANCHI & SONS IMPORTS PVT. LTD., MUMBAI

ITA 2891/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8558 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SHAH
• Assessee Lawyers: N HEMALATHA
• Keywords: Bogus purchase; Peak credit; Accommodation entries
• Section: 69C; 143(3); 131; 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 2891 / MUM/20 17 ( ASSESSMENT YEAR : 2007 - 08 ) ITO 6(3)(3) ROOM NO.524, 5 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 VS. M/S. KANCHI & SONS IMPORTS PVT. LTD., 1501, MAHINDRA HEIGHTS 96, TARDEO ROAD TARDEO, MUMBAI 400 034 PAN/GIR NO. AACCK0634K APPELLANT ) .. RESPONDENT ) C.O NO.247/MUM/2017 (ARISING OUT OF ITA NO. 2891/ MUM/20 17) ( ASSESSMENT YEAR : 2007 - 08 ) M/S. KANCHI & SONS IMPORT S PVT. LTD., 1501, MAHINDRA HEIGHTS 96, TARDEO ROAD TARDEO, MUMBAI 400 034 VS. ITO 6(3)(3) ROOM NO.524, 5 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 PAN/GIR NO. AACCK0634K APPELLANT ) .. RESPONDENT ) ASSESSEE BY MS. N. HEMALATHA REVENUE BY SHRI DINESH SHAH DATE OF HEARING 05 / 10 /201 7 DATE OF PRONOUNCEME NT 14 / 11 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 12, MUMBAI DATED 03/02/2017 FOR A.Y. 2007 - 08 IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S,147 OF THE IT ACT . 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE : - ITA NO. 2891/MUM/2017 & CO NO.247/MUM/2017 M/S. KANCHI AND SONS IMPORTS PVT. LTD., 2 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS,41,00,000/ - U/S.69C OF THE ACT, ON ACCOUNT OF BOGUS PURCHASE BY IGNORING THE F ACT THAT DURING POST , - SURVEY INQUIRY, SHRI MAHESH PYARELAL MEHTA, PROP, M/S U.M. EXPORT HAS RETRACTED HIS STATEMENT GIVEN UNDER OATH BEFORE THE DDIT(LNV.) UNIT - V1I(3), MUMBAI ON 26.03.2008 AFTER A GAP OF 4 YEARS WHEREIN, HE HAD ON OATH STATED THAT HE IS DOING WORK ON COMMISSION BASIS ONLY AND NO DELIVERY IS EFFECTED.' 2. 'ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THAT THE ASSESSEE DECLINED THE OPPORTUNITY OF CROSS EXAMINING THE WITNESS WHO HAD ADMITTED T O HAVE ARRANGED ACCOMMODATION BILLS FOR THE ASSESSEE.' 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) ERRED IN DELETING THE ADDITION OF RS,4,22,450/ - ON ACCOUNT OF G.P. ADDITION IGNORING THE FACT THAT THE ASSESSEE HAD SUPP RESSED ITS GROSS PROFIT BY WAY OF ACCOMMODATION ENTRIES REGARDING PURCHASE OF DIAMONDS FROM M/S. U.M. EX P ORTS. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C1T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 5. THE APPELLANT C RAVES LEAVE TO AMEND OR ALTER ANY GROUND OR TO SUBMIT ADDITIONAL NEW GROUND, WHICH MAY BE NECESSARY.' 3. THE GROUNDS TAKEN IN THE CROSS OBJECTION BY ASSESSEE ARE AS UNDER: - (1) THE CIT (A) 12 ORDER DATED 03/02/2017 BE UPHELD AND THE ASSESSING OFFICER I.E. THE INCOME TAX APPEAL BE DISMISSED. 2.1 WHEN IN THE CASE OF SUPPLIERS OF GOODS HIS SALES TO THE APPELLANT IS ACCEPTED UNDER SECTION 143 (3). THE ASSESSEE'S PURCHASES BE ACCEPTED AND ADDITION MADE BY THE A.O BE DELETED I.E. THE CIT (A) 12 ORDER BE UPHE LD. 2.2. THIS VIEW IS FURTHER SUPPORTED BY MUMBAI TRIBUNAL DECISION IN CASE OF M/S. JITENDRA H. TEXTILES V/S THE (TO WARD 4 (2) (3) I BENCH. ITA NO 771M2011 (A.Y. 2007 - 08) AND CO. ITANO2211/MUM/2011 (A.Y. 2007 - 08) 3. THE A.O ERRED IN THE FACTS AND CIRCUMSTANCES OF CASE AS WELL AS IN LAW NOT ALLOWING C/FD OF BUSINESS LOSS OF RS. 1,60,06,1127 - TO THE NEXT YEAR I.E. A.Y. 2008 - 09 AND ONWARD. 4. WITHOUT PREJUDICE TO OTHER GROUNDS OF THE A.O HAS MADE ADDITION U/S 69C AMOUNTING TO RS.41,00,000 / - WHEN ALL PAYMENT TO THE CREDITORS HAS GONE THROUGH BANKING CHANNELIZE OUT OF BANK ALE DISCLOSED TO THE INCOME TAX ADDITION MADE U/S 69C BE DELETED. ITA NO. 2891/MUM/2017 & CO NO.247/MUM/2017 M/S. KANCHI AND SONS IMPORTS PVT. LTD., 3 5. THE A.O HAS ALSO MADE ADDITION OF ALLEGED BOGUS PURCHASES AMOUNTING TO RS.4,22,450/ - WHEN THE BOOKS OF A/ CS ARE SUBJECT TO TAX AUDIT. THE APPELLANT HAS KEPT DAY TO DAY QUANTITIES TALLY AND THE GOODS ARE EXPORTED. 6. THE BOOKS OF ACCOUNTS ARE REJECTED WITHOUT ISSUE OF NOTICE U/S 145 (3). THE ADDITION BE DELETED. 7. THE A.O HAS NOT DISPOSED OFF OBJEC TION RAISED AGAINST THE RE - OPENING OF THE CASE AND THE ORDER HAS BEEN PASSED IN VIOLATION OF PRINCIPLE LAID DOWN IN SUPREME COURT JUDGEMENT IN CASE OF G.K. DRIVESHAFTS (I) LTD. V/S (TO (2003) 259ITR19 (SC). IN VIEW OF THIS THE ASSESSMENT BE DECLARED NULL A ND VOID. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. IN THIS CASE, DDIT(INV.), UNIT - VII, MUMBAI VIDE LETTER NO. DDIT(INV.)/UNIT - VII(3)/FIU/2008 - 09 DATED 30.03.2009 HAS SUBMITTED THAT AN INFORMATION RECEIVED FROM FINANCIAL INTELLIGENCE UNIT - IN DIA (FIU - IND), DEPARTMENT OF REVENUE, MINISTRY OF FINANCE VIDE F.NO.1000000767 REGARDING SUSPICIOUS TRANSACTIONS IN THE BANK ACCOUNTS OF THE 4 ENTITIES (1) M/S. U.M. EXPORTS (2) M/S. AASHI GEMS (3) M/S. L.G. DIAMONDS (4) M/S. S.P. ENTERPRISES. AS PER THE F IU INFORMATION RECEIVED, THE GROUND OF SUSPICION WAS THAT THE REPORTED TRANSACTION INDICATED LARGE CASH DEPOSITS/ WITHDRAWALS WHICH WERE FOLLOWED / PRECEDED BY A COMPLEX SET OF INTER - ACCOUNT TRANSFERS WITHOUT SHOWING JUSTIFIABLE ECONOMIC RATIONALE. CONCRET E INVOICES WERE NOT AVAILABLE FOR ANY OF THE TRANSACTIONS IN SUCH ACCOUNT TRANSFERS. THE BALANCE SHEET ALSO SHOWED VARIANCE IN INCOME STATED AND ACTUAL TRANSACTIONS. HUGE TURNOVERS WERE OBSERVED WITH MEAGER INCOMES. IT WAS ALSO REPORTED THAT THESE ACCOUNTS HAVE COMMON TELEPHONE CONTRACT NUMBERS IN SPITE OF HAVING DIFFERENT PROPRIETORS AND HAVING OFFICES AT DIFFERENT ADDRESSES. FOR SOME ACCOUNTS DIFFERENT ENTITIES HAVE STATED ITA NO. 2891/MUM/2017 & CO NO.247/MUM/2017 M/S. KANCHI AND SONS IMPORTS PVT. LTD., 4 SAME ADDRESSES. TO INVESTIGATE INTO THE ABOVE SUSPICIOUS TRANSACTIONS, COPIES OF ST ATEMENTS OF ACCOUNT OF ABOVE NAMED FOUR ENTITIES WITH YES BANK LTD., NARIMAN POINT BRANCH, MUMBAI WERE CALLED FOR. ANALYSIS OF THESE STATEMENTS OF ACCOUNT SHOWED THAT IMMEDIATELY AFTER OPENING OF THE BANK ACCOUNT HUGE SUMS WERE DEPOSITED IN THESE ACCOUNTS AND IMMEDIATELY FROM THE SAME ACCOUNT CASH IS WITHDRAWN EITHER BY CHEQUE WITHDRAWAL OR TRANSFERRED AMONGST BANK ACCOUNTS OF ASSOCIATE CONCERNS FROM WHERE THE AMOUNT WAS ULTIMATELY CASH WITHDRAWN. SUMMONS U/S. 131 DATED 19.03.2008 WERE ISSUED TO THE ABOVE M ENTIONED 4 ENTITIES. ON 26.03.2008, SHRI. MAHESH P. MEHTA, PROPRIETOR OF M/S. U.M. EXPORTS ATTENDED AND HIS STATEMENT WAS RECORDED U/S. 131 OF THE ACT. VIDE QUESTIONS NOS.7 TO 10, SHRI. MAHESH P. MEHTA WAS ASKED TO EXPLAIN THE WITHDRAWAL OF CASH IMMEDIATEL Y AFTER DEPOSIT OF CHEQUES RECEIVED FROM PARTIES AND STATE WHETHER HE IS ADOPTING MODUS - OPERANDI OF ISSUING BILLS AND DIVERTING FUNDS TO THESES PARTIES. IN REPLY, SHRI. MAHESH P. MEHTA STATED THAT HE IS DOING WORK ON COMMISSION BASIS AND DO NOT BUY AND SAL E THE GOLD OR DIAMONDS OR ANY ARTICLES WITH HIS ABOVE ASSOCIATES AND EVEN WITH OTHER ENTITIES LIKE SANYAM DIAMONDS, MUKESH DIAMONDS, HARDIK JAIN EXPORTS, ASHOK METALS, ETC. IN HIS STATEMENT, SHRI MAHESH P. MEHTA CONFIRMED THAT HIS ONLY DOING BUSINESS ON CO MMISSION BASIS. 5. IN VIEW OF THE ABOVE, AO CONCLUDED THAT THE ASSESSEE HAS OBTAINED THE ACCOMMODATION BILLS FOR AN AMOUNT OF RS.1,77,50,000/ - FROM M/S. U.M. EXPORTS TO INFLATE / ACCOMMODATE ITS PURCHASES. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE FILED THE LEDGER ACCOUNT OF M/S. U.M. EXPORTS. ITA NO. 2891/MUM/2017 & CO NO.247/MUM/2017 M/S. KANCHI AND SONS IMPORTS PVT. LTD., 5 FROM THE LEDGER ACCOUNT PEAK CREDIT PURCHASE WORKED OUT TO RS.41,00,000/ - . HENCE, PEAK CRE DIT PURCHASE OF RS.41,00,000/ - WA S ADDED U/S.69C OF THE IT ACT. 6. BY THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITIONS SO MA DE BY THE AO AGAINST WHICH REVENUE IS IN FURTHER APPEAL BEFORE US. 7. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF DIAMONDS. IN PURSUANCE OF THE INVESTIGATION REPORT WITH REGARD TO THE HAWALA DEALERS, AO MADE INDEPENDENT ENQUIRY AND FOUND THAT ASSESSEE HAS OBTAINED BILLS OF RS.1,77,50,000/ - FROM U.M. EXPORTS TO INFLATE / ACCOMMODATE ITS PURCHASES. ACCORDINGLY, HE WORK ED OUT THE PRE - CREDIT OF RS.41,00,000/ - AND ADDED THE SAME U/S. 6 9C. 8. BY THE IMPUGNED ORDER, CIT(A) DELETED THE ADDITION MERELY BY OBSERVING THAT CORRESPONDING SALES MADE BY THE ASSESSEE HAS NOT BEEN DECLINED AND THAT AO HAS NOT BROUGHT ANYTHING ON RECORD TO SUGGEST THAT SUPPLIERS HAVE GIVEN MONEY BACK TO THE ASSESSEE. I DO NOT FIND ANY MERIT IN THE ACTION OF THE CIT(A). CONSIDERING THE NATURE OF TRADE ASSESSEE IS INVOLVED VIS - - VIS THE GP DECLARED BY THE ASSESSEE AND CBDT CIRCULAR NO.2/2008 DATED 22/02/20 08 WITH REGARD T O NP IN CASE OF EXPORT TRADE, I RESTRICT THE ADDITION TO THE EXTENT OF 6% OF BOGUS PURCHASES WITH A FURTHER REDUCTION OF ACTUAL NET PROFIT RATE SHOWN BY THE ASSESSEE. I DIRECT ACCORDINGLY. ITA NO. 2891/MUM/2017 & CO NO.247/MUM/2017 M/S. KANCHI AND SONS IMPORTS PVT. LTD., 6 9. IN THE CROSS OBJECTION, ASSESSEE HAS TAKEN G RO UND FOR NOT ALLOWING THE SET OFF OF CARRY FORWARD LOSSES . I FOUND THAT GROUND NO.3 TAKEN IN THE CO DID NOT ARISE OUT OF THE AO NOR OUT OF THE CIT(A). THE SAME IS DISMISSED IN LIMINI. 10. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED IN PART WHEREAS CROSS OBJECTION FILED BY ASSESSEE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 14 / 11 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 14 / 11 /201 7 KARUNA SR. PS COPY OF THE OR DER 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//