DINESHKUMAR M. SANGHVI, MUMBAI V. ITO 16(3)(3), MUMBAI

ITA 2983/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0188 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURESH KUMA R RAI
• Assessee Lawyers: KETAN D SAIYA
• Keywords: Bogus purchase; Accommodation entries
• Section: 69C; 143(3); 133(6); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) DINESHKUMAR M. SANGHAVI, 64, HARSHWALA BUILDING, S.V.P.ROAD, ALANKAR CENEMA, MUMBAI 400 007 PAN: AFXPS8582F ...... APPE LLANT VS. THE INCOME TAX OFFICER 16(3)(3), MUMBAI APPELLANT BY : SHRI KETAN D. SAIY A RESPONDENT BY : SHRI SURESH KUMA R RAI DATE OF HEARING : 26/05/2017 DATE OF PRONOUNCEMENT : 24/08/2017 ORDER THE CAPTIONED APPEAL FILED BY THE ASSESSEE PE RTAINING TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-30, MUMBAI DATED 18/12/2015, WHICH IN TURN, ARISES OUT OF OR DER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 18/02/2014. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THIS APPEAL READ AS UNDER:- YOUR APPELLANT PRAYS THAT THE FOLLOWING GROUNDS B E DECIDED INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER: 2 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) 1. THE LEARNED INCOME TAX OFFICER 16(3)(3) (HER EINAFTER REFERRED TO AS THE 'ITO') ERRED AND HON'BLE CIT (A) ERRED IN CONFIRMING THE A DDITION OF RS. 35,25,867/- FOR ASSESSMENT YEAR 2010-11 BEING THE PURCHASES CONSIDE RED AS 'BOGUS PURCHASES'. 2. YOUR APPELLANT SUBMITS THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE ITO AND HON'BLE CIT(A) OUGHT NOT TO HAVE MADE ADDIT ION OF RS.35,25,867/- FOR ASSESSMENT YEAR 2010-11 AND HAVE FAILED TO APPRECIA TE AND OUGHT TO HAVE HELD THAT: (A) LEARNED ITO HAD MENTIONED IN ITS ORDER THAT PUR CHASES ARE FROM BOGUS DEALERS AS PER INFORMATION RECEIVED FROM SALES TAX AUTHORIT Y OF MAHARASHTRA. NEITHER SALES TAX AUTHORITIES NOR INCOME TAX AUTHORITIES HAD ANY CONFESSION / CONFIRMATION FROM SAID PARTIES THAT, THEY HAD NOT SOLD GOODS TO APPEL LANT. FURTHER, THOSE SUPPLIERS HAD NOT CONFESSED THAT THEY HAVE NOT SUPPLIED GOODS TO THE APPELLANT, (B) APPELLANT WOULD ALSO LIKE TO STATE THAT, THOSE PARTIES WERE HAVING TIN AND FOR SOME OF THEM PAN NUMBER WAS ALSO AVAILABLE. NORMAL PRECAUTIONS WERE TAKEN WHILE DEALING WITH THESE PARTIES. DEPARTMENT COULD HAVE TRACED THE LATEST ADDRESS BASED ON PAN/TIN. (C) THE LEARNED ITO DISALLOWED THE PURCHASES BUT TA KEN SALES AS CORRECT AND GENUINE. WITHOUT PURCHASES, HOW SALES CAN BE MADE? HENCE, IT IS NOT CORRECT TO TAKE SALES AS GENUINE AND PURCHASES AS BOGUS AS BOT H HAVE CO-RELATION WITH EACH OTHER. HENCE EITHER, SALES AND PURCHASES BOTH SHOUL D BE CONSIDERED OR DELETED TOGETHER. FURTHER, APPELLANT WOULD LIKE TO STATE THAT, PURCHA SES WHICH WERE IN DISPUTE WERE SOLD TO GOVERNMENT COMPANIES AND THE APPELLANT HAD PRODUCED THE TEST REPORT OF THE GOODS. IT SUGGESTS THAT, SALES ARE GENUINE AND BASED ON THAT THE PURCHASES SHOULD BE TREATED AS GENUINE ONLY. HENCE, NO ADDITI ON IS WARRANTED. (D) FURTHER, IT IS TO BE NOTED THAT IF THE SUPPLIER HAS NOT MAINTAINED PROPER RECORDS AND MAY HAVE SO ADMITTED TO BE ISSUING BILLS TO THE SALES TAX AUTHORITY, BUT IT CANNOT BE A BASIS FOR REJECTING THE DOCUMENTARY EVI DENCE AND DETAILS MAINTAINED BY THE APPELLANT. APPELLANT HAS ALL THE RECORDS FOR THE TRANSACTIONS ENTERED INCLUDING THE STOCK MOVEMENT REGISTER, WHICH CAN BE PRODUCED. HOW APPELLANT CAN BE HELD RESPONSIBLE FOR NON MAINTENANCE OF RECORDS BY THOSE PARTIES. (E) APPELLANT ALSO WOULD LIKE TO SUBMIT THAT, LEARN ED ITO HAD A PRESUMPTION THAT, THE PARTIES WHICH ARE MENTIONED IN THE SUSPICIOUS D EALERS LIST IN THE SALES TAX WEBSITE ARE BOGUS DEALERS. APPELLANT WOULD LIKE TO STATE THAT, PRESUMPTION CANNOT BE A GROUND FOR DISALLOWANCE AND TAKING IT AS EVIDE NCE. ALSO, IT IS WORTH TO BE NOT-D THAT SALES TAX AUTHORITIES HAVE DECLARED THEM AS 'S USPICIOUS DEALERS' AND NOT 'BOGUS DEALERS'. SUSPICION OF HIGHEST DEGREE CANNOT TAKE PLACE OF EVIDENCE. THE LIST OF BOGUS DEALERS IS SEPARATELY HOSTED ON THE W EBSITE OF THE SALES TAX AUTHORITIES, WHEREIN SAID PARTIES ARE NOT THERE. 3 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) (F) FURTHER, LEARNED ITO HAD MENTIONED THAT NOTICE U/S. 133(6) WAS ISSUED TO THE SUPPLIERS AND THEY HAVE NOT REPLIED TO THE SAME AND DUE TO WHICH ITO TREATED THEM AS BOGUS SUPPLIERS. MERELY BECAUSE THE SUPPLIER HAS NOT RESPONDED TO THE NOTICE U/S. 133(6) AND NOT ABLE TO VERIFY THE CORRECTNESS OF EXPLANATION THE APPELLANT, IT CANNOT BECAME GROUND FOR DISALLOWANCE OF PURCHASES FROM THOSE PARTIES. THERE MAY BE A POSSIBILITY THAT THESE SUPPLIERS MAY HAVE SHIFTED TO OTHER ADDRESSES, AS THE MATTER IS 5-6 YEARS OLD. (G) YOUR APPELLANT WHILE FURNISHING NECESSARY INFOR MATION REGARDING THE TRANSACTIONS AND THE AFORESAID PARTIES LIKE PURCHAS ES MADE ON THE BASIS OF COPIES OF INVOICE OF PURCHASES, STOCK STATEMENT, BANK STATEME NT SHOWING ENTRIES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUE TO SUPPLIERS (PURCHASE PARTIES) AND STATEMENT GAVE COMPLETE DETAILS WITH REGARDS TO OPENING STOCK, PUR CHASES, SALES AND CLOSING STOCK THEREBY FORMING THAT SUBSTANTIAL AMOUNT OF SALES MA DE BY APPELLANT WAS TO GOVERNMENT COMPANIES AND THE DETAILS OF STATEMENT O F PURCHASES AND CO-RELATION SALES WHICH WERE ENCLOSED HEREWITH, HAD DISCHARGE I TS PRIMARY ONUS, THEREAFTER THE ONUS SHIFTED ON THE DEPARTMENT TO REBUT THE SAME. (H) THE LEARNED ITO HAD CONSIDERED THE SALES AS GEN UINE AND PURCHASES AS BOGUS. IF THE ADDITIONS ARE MADE FOR PURCHASES, THE GROSS PRO FIT RATIO WILL BE ABSORBED AND NOT REASONABLE, WHEREAS THE SAME IS-IN LINE OF THE EARLIER YEARS. THE GROSS PROFIT RATIO OF PAST YEARS IS AS FOLLOWS A.Y. 2009-10 5.54% A.Y. 2008-09 5.62% A.Y 2007-08 7.04% A.Y 2006-07 7.06% IT CAN BE SEEN FROM ABOVE THAT THE GROSS PROFIT RAT IO OVER THE YEAR WAS STABLE AND NO MAJOR DEVIATION WERE NOTICE. THE APPELLANT PRAYS THAT LEARNED ITO BE DIRECTED TO DELETE THE ADJUSTMENTS MADE IN PURCHASES. . 3. WITHOUT PREJUDICE TO THE ABOVE, IF AT ALL TH E ADDITIONS ARE MADE; THE SAME SHOULD BE ON THE BASIS OF FACTUAL GROSS PROFIT OF T HE RESPECTIVE YEARS AND NOT ON THE BASIS OF AD-HOC PERCENTAGE OF PURCHASES. THE APPELLANT PRAYS THAT, ADDITION SHOULD BE RESTRI CTED TO THE FACTUAL GROSS PROFIT RATIO OF RESPECTIVE YEARS AND NOT AT AD-HOC PERCENT AGE OF 12.5%. 4 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) 4. YOUR APPELLANT CRAVE LEAVE TO ADD TO, AMEND, A LTER, VARY, OMIT OR SUBSTITUTE THE AFORESAID GROUNDS OF APPEAL AT ANYTIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 3. IN THIS APPEAL, ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT THE SOLITARY GRIEVANCE ARISES FROM THE ACTION OF THE ASSESSING OFFICER IN TREATING THE PURCHASES AMOUNTING TO RS.35,28,857/- MADE FROM THREE PARTIES AS BOGUS. 4. IN THIS APPEAL, THOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT THE SOLITARY GRIEVANCE ARISES FROM THE ACTION OF THE ASSESSING OFFICER IN TREATING PURCHASES AMOUNTING TO RS.35,28 ,857/- MADE FROM THREE PARTIES AS BOGUS. 5. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APP ELLANT ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN FE RROUS AND NON-FERROUS METALS UNDER THE PROPRIETARY CONCERN, NAMELY M/S. M AX STEELS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE FILED THE RETURN OF INCOME ON 11/10/2010, DECLARING A TOTAL INCOME OF RS.9,35,156 /-, WHICH WAS SUBJECT TO AN ASSESSMENT UNDER SECTION 143(3)(II) OF THE ACT DATED 27/12/2012 ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, THE A SSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT AND IN THE ENSUING ASSESSMENT ORDER PASSED UNDER SE CTION 143(3) R.W.S. 147 OF THE ACT DATED 18/02/2014, PURCHASES OF RS.35,28, 867/- MADE FROM THREE PARTIES NAMELY, M/S. ANIKET INDUSTRIES, M/S. HITEN ENTERPRISES AND OSIAN STEEL IMPEX WERE HELD TO BE BOGUS, BASED ON THE INF ORMATION RECEIVED FROM THE SALES TAX DEPARTMENT OF MAHARASHTRA. AS PER TH E SAID INFORMATION THE AFORESAID THREE PARTIES WERE IN THE LIST OF PARTIES , WHO WERE ISSUING HAWALA BILLS OR ACCOMMODATION ENTRIES. ACCORDINGLY, TH E ASSESSING OFFICER ASSESSED AN AMOUNT OF RS.35,25,867/- AS UNEXPLAINED EXPENDIT URE UNDER SECTION 69C OF THE ACT. THE CIT(A), IN PRINCIPLE ACCEPTED THE STAND OF THE ASSESSING 5 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) OFFICER BUT NOTED THAT THE APPELLANT WAS ENGAGED IN MAKING SUPPLIES TO THE GOVERNMENT DEPARTMENTS AND THE SALES WERE ACCEPTED BY THE ASSESSING OFFICER AND, THEREFORE, THE ASSESSING OFFICER COULD NOT HAVE MADE ADDITION OF THE TOTAL VALUE OF PURCHASES AS BOGUS. THE CIT(A) REFERRED TO THE JUDGMENTS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BH OLANATH POLY FAB PVT. LTD., 355 ITR 290 (GUJ), SANJAY OIL CAKE IND. 316 ITR 274 (GUJ) AND CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385(GUJ) AND HELD THAT IN SUCH CIRCUMSTANCES ADDITION COULD ONLY BE MADE ON ACCOUNT OF SUPPRESSI ON OF TRUE PROFITS MADE ON ACCOUNT OF PROCURING BOGUS PURCHASE BILLS. THE C IT(A) NOTED THAT IN SUCH CIRCUMSTANCES ESTIMATES RANGING FROM 12.50% TO 25% HAD BEEN UPHELD BY VARIOUS AUTHORITIES AND ACCORDINGLY HE ESTIMATED TH E PROFIT FROM THE PURCHASES FROM PARTIES AT 17.50%. HAVING DONE SO, HE FURTHER NOTED THAT THERE WAS AVERAGE G.P OF AROUND 5% DECLARED BY THE ASSESSEE OVER THE YEARS AND THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO REDUCE THE SAME TO ARRIVE AT THE NET ADDITION ON ACCOUNT OF ALLEGED BOGUS PUR CHASES FROM THE SAID PARTIES. NOT BEING SATISFIED WITH THE ORDER OF TH E CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. BEFORE ME, ARGUMENTS OF THE ASSESSEE PRIMARILY R EVOLVE AROUND THE ESTIMATION OF PROFIT MADE BY THE CIT(A). IN THIS C ONTEXT, IT HAS BEEN POINTED OUT THAT TOTAL PURCHASES EFFECTED BY THE ASSESSEE A RE TO THE TUNE RS.9,07,15,928/-, AND THE IMPUGNED PURCHASES WHICH WERE ALLEGED TO BE BOGUS ARE QUITE INSIGNIFICANT, AND NO MOTIVES COULD BE ATTRIBUTED TO ASSESSEE. THE LD. REPRESENTATIVE FOR THE ASSESSEE ALSO POINTE D OUT THAT SIMILAR MATERIAL HAS ALSO BEEN PURCHASED BY THE ASSESSEE FROM OTHER PARTIES ALSO AND SUPPLIED SOLD TO THE GOVERNMENT DEPARTMENTS AT A LESSER RATE OF PROFIT, AND THE SAME 6 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. IT WAS THEREFORE, CONTENDED THAT ONCE A LESSER RATE OF PROFIT IS ACCEPTED ON THE TRA DING OF SIMILAR ITEMS, THE ESTIMATION MADE BY THE CIT(A) AT 17.50% IS ALSO NOT JUSTIFIED. 7. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE RELIED UPON THE ORDER OF CIT(A) IN SUPPORT OF THE REVENUE. 8. I HAVE CONSIDERED THE RIVAL STANDS AND NOTICED T HAT THE PRIMARY DISPUTE IN THIS APPEAL REVOLVES AROUND THE LEVEL OF PROFIT ESTIMATED BY THE CIT(A) WITH RESPECT TO THE ALLEGED UNPROVED PURCHASES. THOUGH T HE CIT(A) HAS REFERRED TO THE ESTIMATION OF PROFIT RANGING FROM 12.50% TO 25% , SO HOWEVER, HE HAS NOT GIVEN ANY PARTICULAR REASON AS TO WHY HE HAS RESORT ED TO THE ESTIMATION @17.50%. ON THE CONTRARY, IN SIMILAR SITUATIONS, T HE MUMBAI BENCHES OF THE TRIBUNAL HAVE ESTIMATED THE PROFIT @ 12.50% IN THE CASE OF SIMILARLY PLACED ASESSEES ENGAGED IN THE BUSINESS OF TRADING IN FERR OUS AND NON-FERROUS METALS. THEREFORE, IN MY VIEW, IN THE FITNESS OF T HINGS, THE ESTIMATION OF 17.50% ADOPTED BY THE CIT(A) DESERVES TO BE REDUCE D TO 12.50%. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO R ECOMPUTE THE ADDITION CONSIDERING THE ESTIMATION OF PROFIT AT 12.50% ON T HE PURCHASES MADE FROM THE IMPUGNED PARTIES, OF COURSE, AFTER REDUCING THE 5% G.P, AS DIRECTED BY THE CIT(A). THUS, ON THIS ASPECT, ASSESSEE PARTLY SUCCEEDS. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED, AS ABOVE. SD/- (G.S. PANNU) ACCOCUNTANT MEMBER MUMBAI, DATED 24/08/2017 VM , SR. PS 7 ITA NO.2983/MUM/2016 ( ASSESSMENT YEAR 2010-11) 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