SHRI. CHIRAG RAJENDRA SHAH, MUMBAI V. ITO 31(1)(3), MUMBAI

ITA 319/MUM/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4629 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts; Opportunity of being heard; Tangible material; Accommodation entries; Reason to believe
• Section: 147; 148; 144; 69C; 133(6); 143(1); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E"BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah 801, Laxmi Villa, Road No. 3 Plot No. 281, Jawahar Nagar Near Suvidha Hospital Goregaon (W), Mumbai – 400104 PAN: AVQPS7888H v. Income Tax Officer – 31(1)(3) Kautilya Bhavan G-Block, Bandra Kurla Complex Bandra(E), Mumbai - 400051 (Appellant) (Respondent) Assessee by : Shri Vimal Punmiya Department by : Shri B.K. Bagchi Date of Hearing : 24.05.2022 Date of Pronouncement : 22.06.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), N Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 23.12.2012 for the A.Y.2011-12. 2. Assessee has raised following grounds in his appeal: - “1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income tax (Appeals) erred in 2 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah confirming addition of Rs. 17363713/under section 69C of the Act on account of unexplained purchases made during the year. Provisions of the Act ought to have been properly construed and regard being had to facts of the case no such addition should have been made under section 69C of the Act. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income tax (Appeals) failed to adjudicate and erred in confirming rejection of books of accounts of the appellant by invoking provisions of section 145(3) of the Act. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in and failed to adjudicate and appreciate that (a) Proceeding initiated under section 147 /148 of the Act is on the basis of reason to suspect and not on reason to believe. (b) There is no new tangible material in possession of the Assessing Officer which justify issuance of notice u/s 148 of the Act (c) The initiation of proceeding under section 147 of the Act and issuance of notice under section 148 is without jurisdiction, bad in law and contrary to the provisions of the Act and liable to be cancelled / annulled (d) The learned Assessing Officer failed to obtain sanction from prescribed authority as provided in section 151 of the Act. 4. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in failed to adjudicate and confirming order made under section 144 rws 147 of the Act by the learned Assessing Officer which is without jurisdiction, illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant, without providing cross examination of persons whose statements are relied upon, is liable to be annulled. 5. The learned Commissioner of Income Tax (Appeals) erred in confirming charging of interest under section 234A, 234B, 234C and 234D of the Act. 6. The appellant crave leave to add, amend, alter and / or vary any of the grounds of appeal before or at the time of hearing.” 3 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah 3. Briefly stated the facts are that, the assessee engaged in the business of trading of non-ferrous metals & other items, filed his return of income on 20.09.2011 declaring income of ₹.1,67,730/- for the A.Y.2011-12 and the return was processed u/s. 143(1) of the Act. Subsequently, Assessing Officer received information from the DGIT (Investigation), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened U/s. 147 of the Act based on the information received from DGIT (Investigation), Mumbai, that the assessee has availed accommodation entries from various dealers who are appeared as hawala dealers in the website of the Sales Tax Department, Mumbai who are said to be providing accommodation entries without there being transportation of any goods. In the re-assessment proceedings, the assessee was required to prove the genuineness of the purchases made from the above parties which are referred in the Assessment Order. The assessee filed return of income declaring total income of ₹.1,67,730/- u/s. 148 of the Act. Assessee furnished tax audit report, purchase register, sales register and bank statement for the period 01.04.2010 to 31.03.2011 and submitted that the purchases made are genuine. 4 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah 4. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that assessee has not substantiated its correct book results by producing the quantity details of consumption of materials, therefore the purchases to that extent remained unverifiable. Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the parties were returned unserved and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated purchases of ₹.1,73,63,713/- for A.Y. 2011-12 as non-genuine and added to the income of the assessee. On appeal the Ld.CIT(A) sustained the addition made by the Assessing Officer. Against this order, assessee is in appeal before us. 5. Before us, the Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. He also placed reliance on the decision of the Hon'ble Bombay High Court in the case of Pr.CIT v. M/s. Mohommad Haji Adam & Co. in Income Tax Appeal No. 1004 of 2016 dated 11.02.2019 and submitted that the Assessing Officer 5 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah may be directed to estimate the Gross Profit on the non-genuine purchases to similar percentage as shown in the genuine purchases for the purpose of disallowance. Ld. AR brought to our notice that similar ground which assessee has raised before the Coordinate Bench in ITA.No. 792/Mum/2017 for the A.Y. 2009-10 and the Coordinate Bench has considered and adjudicated the issue in favour of the assessee. In this regard, he brought to our notice Para No. 15 &16 of the order (Copy of the order is placed on record) and prayed that the same may be followed. 6. Ld. DR vehemently supported the orders of the Assessing Officer. 7. Considered the rival submissions and material placed on record, we observe that Assessing Officer treated entire purchases made from various concerns which appeared as hawala dealers and subsequently the Ld.CIT(A) sustained the same. We further observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee’s own case for the A.Y. 2009-10 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “15 As regards merits of the case upon careful consideration we find that the delivery challans have been found by learned CIT(A) to be concocted. The assessee has provided incomplete documentary evidence for the purchase. Adverse inference has also been drawn due to the inability of the assessee to produce the suppliers and absence of complete documentary evidence. We find that in this case the sales have not been doubted. It is settled law that when sales 6 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt.18.06.2014). In this case the honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However in that case all the supplies were to government agency. In the present case the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee Savings on account of non-payment of tax and others at the expense of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by honourable High Court of Bombay in its recent judgement in the case of principle Commissioner of income tax versus M. Haji Adam & Co. (ITA number 1004 of 2016 dated 11/2/2019 in paragraph 8 there off), the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. 16. Respectfully following the aforesaid judgement of the honourable High Court set aside the matter to the file of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Needless to add the assessee should be granted adequate opportunity of being heard.” 8. Respectfully following the above decision and also following principle of consistency, we direct the Assessing Officer to restrict the addition/disallowance only to the extent of bringing the Gross Profit rate on alleged bogus purchases at the same rate of the other genuine purchases declared by the assessee, after calling for the details and verification of records. The assessee is directed to furnish the necessary 7 ITA NO. 319/MUM/2022 (A.Y.2011-12) Shri Chirag R. Shah information in this regard. It is needless to say that assessee maybe given proper opportunity of being heard. 9. In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on 22 nd June, 2022 Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22/06/2022 Giridhar, Sr.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