ITO WD 29(2)(4), MUMBAI V. NAVIN J. DOSHI, MUMBAI

ITA 3136/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0096 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 05-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 04-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Bogus purchase; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 3136 / MUM/20 1 6 ( ASSESSMENT YEAR : 2011 - 12 ) ITO WD 29 (2)(4) R.NO.205, 2 ND FLOOR, C - 10, BUILDING, PRATYAKSHAKAR BHAVAN, BKC, BANDRA (E), MUMBAI 400 051 VS. MR. NAVIN J DOSHI D - 705, KALP NAGARI BALRAJESHWAR ROAD MULUND (W) MUMBAI 400 080 PAN/GIR NO. ADDPD0288P APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI V.VIDHYADHAR ASSESSEE BY NONE DATE OF HEARING 02 / 0 8 /201 7 DATE OF PRONOUNCEME NT 31 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 40, MUMBAI DATED 10/02/2016 FOR A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. NOBODY APPEARED ON BEHALF OF THE ASSESSEE INSPITE OF ISSUE OF NOTICE. 3. ONLY GRIEVANCE OF REVENUE RELATES TO DELETION OF ADDITION MADE BY THE CIT(A) IN RESPECT OF BOGUS PURCHASES AFTER ESTIMATI NG PROFIT AT 12.5%. 4. WE HAVE GONE THRO UGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAS MADE BOGUS PURCHASES WHICH WERE ADDED BY THE AO. ITA NO. 3136/MUM/20 16 MR. NAVIN J DOSHI 2 5. BY THE IMPUGNED ORDER, AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS A ND THE FACTS OF THE CASE, THE CIT(A) RECORDED A DETAILED FINDING AND REACHED TO THE CONCLUSION THAT ADDITION TO THE EXTENT OF 12.5% WILL BE JUSTIFIED. THE FINDINGS RECORDED BY CIT(A) ARE AS UNDER: - 7.28 ' SIMILARLY/IN YET ANOTHER DECISION OF HON'BLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. SMUT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HON'BLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVI DED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAME D PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEES INCOME - AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH EST IMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, ITAT IN THE CASE OF VIJAY PROTEINS 58 IT D 428. 7.29. IN THE CASE OF VIJAY PROTEINS (SUPRA), THE HON'BLE ITAT WAS SEIZED WITH A CASE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 33 PARTIES WERE FOUND TO BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PANICS BY CROSS CHEQUES AND IN FACT THE AO IN THAT CASE HAD BROUGHT ADEQUATE MATERIAL ON RECORD TO PROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A 'BANK ACCOUNT IN THE NAME OF ANOTHER EN TITY, POSSIBLY HAWALA DEALER. SUBSEQUENTLY, THE MONEY DEPOSITED IN THAT ACCOUNT WAS WITHDRAWN IN CASH ALMOST ON THE SAME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE MADE FROM OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT SALE. KEEPING ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERC ENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES. 7.30. FURTHER, IN THE CASE OF M/S. SANKET STEEL TRADERS (ITA NO. 2801/AHD/ 2008 DATED 20 - 05 - 2011 IT WAS, INTER - ALIA, STATED AS UNDER : '3. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE ADDITION SUSTAINED IS EXCESSIVE. IN SUPPORT OF THIS CONTENTION HE REFERRED TO THE DECISION OF THE ITA NO. 3136/MUM/20 16 MR. NAVIN J DOSHI 3 TRIBUNAL IN THE CASE OF ITO VS. S UN STEEL 92 TTJ (AHD) 1126 WHEREIN THE TRIBUNAL HAS SUSTAINED THE ADDITION OF RS.50,000/ - ON ACCOUNT OF BOGUS PURCHASES. HOWEVER, WE FIND THAT THE FACTS IN THE ABOVE CASE WERE DIFFERENT. IN THE ABOVE CASE, THE ASSESSEE HAS SHOWN PURCHASES OF RS.27,39,410/ - , SALE OF RS.28,17,207/ - AND GROSS PROFIT AT RS.94,740/ - . THE ASSESSING OFFICER MADE THE ADDITION OF RS.27,39,407/ - FOR BOGUS PURCHASES. IF THE ABOVE SUM IS ADDED TO THE GROSS PRO/IT, THE GROSS PROFIT WORKS OUT RS.2,83,41,247/ - WHICH WAS MORE THAN THE SA LE ITSELF THE TRIBUNAL HELD THAT IT IS IMPOSSIBLE THAT THE GROSS PROFIT IS MORE THAN THE SALE ITSELF. THE TRIBUNAL ALSO FOUND THAT THE ASSESSEE HAS MAINTAINED THE QUANTITATIVE DETAILS IN RESPECT OF MATERIALS PURCHASED AND SOLD. CONSIDERING THE PECUL IAR FACTS OF THAT CASE, THE TRIBUNAL ARRIVED AT THE CONCLUSION THAT IT WOULD BE [ FAIR AND REASONABLE TO ESTIMATE THE ADDITION AT RS.50,000/ - AS AGAINST THE ADDITION OF RS.27,39,407/ - MADE BY THE ASSESSING OFFICER. HOWEVER, THE LEARNED COMMISSION ER OF INCOME - TAX (APPEALS) CONSIDERING THE FACTS OF THE ASSESSEE'S CASE, HAS SUSTAINED THE ADDITION AT 12.5%. WHILE DOING SO, HE HAS ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. VIJAY PROTEINS LTD. 55 TTJ (AHD) .76. IN THE CASE OF M/S . VIJAY PROTEINS LTD. THE TRIBUNAL HAS SUSTAINED THE ADDITION OF 25% OF THE BOGUS PURCHASES. HOWEVER, CONSIDERING THE FACTS OF THE ASSESSEE'S CASE THE CIT(A) RESTRICTED THE DISALLOWANCE TO 12.5% AS AGAINST 25% MADE IN THE CASE OF M/S. VIJAY PROTEINS LTD. FROM THESE FACTS IT IS EVIDENT THAT THE CIT(A) HAS SUSTAINED THE ADDITION AT 12.5% OF THE NON - GENUINE PURCHASES CONSIDERING THE FACTS OF THE ASSESSEE'S CASE. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. THE SAME IS SUSTAINED. AFTER CONSIDERING THE FACTS AND THE ARGUMENTS OF BOTH THE SIDES, WE ARE OF THE OPINION THAT IT WOULD MEET ENDS OF JUSTICE, IF THE DISALLOWANCE IS SUSTAINED AT 12.5% OF THE PURCHASE FROM THESE TWO PARTIES. THE ASSESSING OFF ICER IS DIRECTED TO WORK OUT THE DISALLOWANCE ACCORDINGLY.' SINCE THE FACTS OF THE ASSESSEE'S CASE ARE IDENTICAL, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE IT AT, DIRECT THE ASSESSING OFFIC ER TO DISALLOW 12.5% OF THE PURCHASES MADE DURING THE YEAR UNDER CONSIDERATION. ' 7.31. AS NARRATED EARLIER, THE LD. A.O. IN THIS CASE HAS HELD THAT THE PARTIES FROM WHOM THE PURCHASES WERE MADE BY THE APPELLANT WERE FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH WAS NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS. NOT HAVING DOUBTED THE CONSUMPTION/SALES, THE MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFI TS. AS MENTIONED ABOVE, THE AO HAD NEVER DISPUTED OR EXAMINED THE SALES. ONCE SALES ARE ACCEPTED, CORRESPONDING PURCHASES HAVE TO BE CONSIDERED AND CANNOT BE DISREGARDED IN TOTALITY. LOOKING TO THE MARKET ITA NO. 3136/MUM/20 16 MR. NAVIN J DOSHI 4 TREND, THE APPELLANT MAY HAVE MADE PURCHASES FROM O THER PARTIES WHICH WERE NOT RECORDED IN THE BOOKS, AND TOOK ONLY BILLS FROM THESE PARTIES AS ACCOMMODATION, TO EXPLAIN THE PURCHASES. THE PURCHASES THEMSELVES ARE NOR BOGUS BUT THE PURCHASE PARTIES SHOWN IN BOOKS ARE. THEREFORE, THE ENTIRE PURCHASE FROM TH ESE PARTIES CANNOT BE ADDED AS BOGUS AND WHAT NEEDS TO BE TAXED IS THE PROFIT ELEMENT EMBEDDED IN SUCH TRANSACTIONS. ESTIMATIONS RANGING FROM 12.5% TO 25% HAVE BEEN UPHELD BY THE HON'BLE GUJARAT HIGH COURT, DEPENDING UPON THE NATURE OF THE BUSINESS. AS HEL D IN THE CASE OF SIMIT P. SHETH (SUPRA), NO UNIFORM YARDSTICK COULD BE APPLIED TO ESTIMATE THE RATE OF PROFIT AND IT VARIES WITH THE NATURE OF BUSINESS. TAKING ALL FACTS INTO CONSIDERATION AS ALSO THE FINDINGS OF THE HON'BLE COURTS ON THIS ISSUE AND THE FA CT THAT DIRECT ONE TO ONE RELATIONSHIP BETWEEN PURCHASES AND SALES HAVE NOT BEEN ESTABLISHED, I AM OF THE VIEW THAT ESTIMATION OF 12.5% AS PROFIT EMBEDDED IN IMPUGNED PURCHASES SHOWN FROM THESE TAINTED PARTIES AND ADDING THE SAME TO THE TOTAL INCOME RETURN ED, WOULD MEET THE ENDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT OF 12.5% IN THE ALLEGED BOGUS PURCHASES, WHICH WORKS OUT TO RS. 31,82,722/ - (12.5% OF RS. 2,54,61,773/ - ) AND RESTRICT THE ADDITION TO RS. 31,82,722/ - . THE APPELLANT GET THE R ELIEF FOR THE BALANCE RS. 2,22,79,051 / - .. THE GROUNDS OF APPEAL, IS PARTLY ALLOWED TO THIS EXTENT. 6. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 7. FROM THE RECORD WE FOUND THAT A CATEGORICAL FINDING HAS BEEN RECORDED BY CI T(A) TO THE EFFECT THAT AO HAS NOT DOUBTED CONSUMPTION / SALES O F THE ALLEGED GOODS SO PURCHASED . UNDER THESE CIRCUMSTANCES, MOTIVE BEHIND OBTAINING BOGUS BILLS WAS TO INFLATE THE PURCHASES SO AS TO SUPPRESS TRUE PROFITS. UNDER THESE FACTS AND CIRCUMSTANCE S, AFTER APPLYING VARIOUS PROPOSITIONS OF LAW TO THE FACTS OF THE CASE, THE CIT(A) REACHED TO THE CONCLUSION THAT ADDITION TO THE EXTENT OF 12.5% OF BOGUS PURCHASE B ILL S SERVE THE END OF JUSTICE. ITA NO. 3136/MUM/20 16 MR. NAVIN J DOSHI 5 8. NOTHING WAS PLACED BEFORE US BY LEARNED DR TO PERSUADE US TO DEVIATE FROM THE FINDINGS RECORDED BY CIT(A) AT PARA 7.28 TO 7.31. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 08 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 3 1 / 08 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLA NT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//