ITO 20(2)(1), MUMBAI V. JAI PRAKASH JINDAL, MUMBAI

ITA 3202/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9038 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Bogus purchase

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.3202/M/2016 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER, WARD 20(2)(1), ROOM NO.216, PIRAMAL CHAMBER, LALBAUG, MUMBAI 400 012 VS. SHRI JAI PRAKASH JINDAL, (PROP. OF M/S. THREE A BROTHERS), 19/8, MADHKAR CHS.,. R.A. KIDWAI ROAD, MUMBAI-400 031 PAN: AAAPJ6514A (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : NONE REVENUE BY : SHRI RAJESH KUMAR YADAV, D.R. DATE OF HEARING : 02.08.2017 DATE OF PRONOUNCEMENT : 13.10.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 08.02.2016 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN BUSINESS OF TRADING IN IRON AND STEEL GO ODS UNDER THE NAME AND STYLE OF THREE A BROTHERS. DURING THE YEA R THE ASSESSING ITA NO.3202/M/2016 SHRI JAI PRAKASH JINDAL, (PROP. OF M/S. THREE A BROTHERS) 2 OFFICER (HEREINAFTER REFERRED TO AS THE AO) FOUND T HAT ASSESSEE HAD MADE BOGUS PURCHASES FROM FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT OF PURCHASE 1. ATLAS ENTERPRISES RS.27,27,129/- 2. JAIN TRADING CORPN. RS.2,07,06,340/- 3. ATLANTIC TRADERS RS.41,79,256/- TOTAL RS.2,76,12,725/- 3. THE ASSESSEE WAS ASKED TO PRODUCE THE ABOVE PART IES FOR VERIFICATION. THERE WAS NO COMPLIANCE OF NOTICE UND ER SECTION 133(6). THEREFORE, THE AO HAS MADE THE ADDITION ON ACCOUNT OF BOGUS PURCHASES OF RS. 2,76,12,725 /-. 4. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 5.9 IN THE INSTANT CASE, THE APPELLANT IS NOT IN A POSITION TO PROVE THE EXISTENCE OF THE SUPPLIERS. THERE IS ENOUGH CIRCUM STANTIAL EVIDENCE CASTING A DOUBT ON THE NATURE OF THE TRANSACTION. I AM OF THE FIRM BELIEF THAT THE APPELLANT HAD MADE CASH PURCHASES FROM OTHER PARTIE S WHICH WERE NOT RECORDED IN THE BOOKS. THE APPELLANT TOOK ONLY BILL S FROM THESE 3 PARTIES AS ACCOMMODATION TO EXPLAIN THE PURCHASES. HOWEVER, TH E ENTIRE PURCHASE FROM THESE 3 PARTIES CANNOT BE ADDED AS BOGUS AND W HAT NEEDS TO BE TAXED IS THE PROFIT ELEMENT EMBEDDED IN SUCH TRANSACTION. TH E AO HAS DISALLOWED 100% OF THESE BOGUS PURCHASES. WHILE DOING SO, THE AO HA S LOST SIGHT OF THE FACT THAT THE TOTAL PURCHASES OF THE APPELLANT DURING TH E YEAR WERE RS.5,20,80,458. THE DISALLOWANCE ON ACCOUNT OF 100% BOGUS PURCHASES ARE 53% OF THE TOTAL PURCHASES. THIS BEGS THE QUEST ION AS TO WHEREFROM THE APPELLANT COULD HAVE MADE SALES OF RS.5,29,22,821 I F 53% OF HIS PURCHASES ARE BOGUS. CLEARLY THIS CANNOT BE ALLOWED TO STAND. AS ALREADY DISCUSSED THERE IS A CERTAIN DOUBT ON THE PURCHASE TRANSACTIONS OF THE A PPELLANT, BUT NOT SO MUCH AS TO CALL FOR 100% DISALLOWANCE. I WOULD BE INCLINED TO FOLLOW THE JUDICIAL WISDOM ON THE MATTER AND DISALLOW A REASONABLE SUM OF THE PUR CHASES. ON A CONSPECTUS OF FACTS, I AM OF THE OPINION THAT THE DISALLOWANCE MADE BY THE AU SHOULD BE REASONABLY RESTRICTED TO THE GP RATE OF THE APPELLA NT DURING THE YEAR WHICH IS 1.6% OF THE BOGUS PURCHASES. I THEREFORE DIRECT THE AO TO ESTIMATE THE ITA NO.3202/M/2016 SHRI JAI PRAKASH JINDAL, (PROP. OF M/S. THREE A BROTHERS) 3 DISALLOWANCE BY ADOPTING 1.6% OF RS.2,76,12,725. TH E DISALLOWANCE MADE BY THE AO IS RESTRICTED TO A SUM OF RS. 4,39,506. GROU ND NO 1&2 ARE PARTLY ALLOWED. 5. WE HAVE HEARD THE LD. D.R. LD. D.R. RELIED UPON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CASES OF SH WETAMBAR STEELS VS. ITO AHMEDABAD AND GANESH RICE MILLS VS. CIT (294 ITR 316). THE FACTS IN THE PRESENT CASE SHOW THAT ASSE SSEE COULD NOT PRODUCE THE PARTIES FROM WHOM GOODS ARE STATED TO H AVE BEEN PURCHASED. THE SUPPLIERS WERE FOUND TO BE ENGAGED I N PROVIDING BOGUS BILL WITHOUT ACTUAL DEALING OF GOODS. IN THIS REGARD, THE ASSESSEE HAS STATED THAT THEY HAD SUBMITTED QUANTIT ATIVE DETAILS OF STOCK WITH RESPECT OF THE SALES WITH PURCHASES FROM THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMIT TED THE DETAIL OF CORRESPONDING SALES IN RESPECT OF THE PURCHASE FROM THE SAID PARTIES. AS MENTIONED ABOVE THE AO HAS NEVER DISPUTED OR EXA MINED THE ASPECT OF SALES RECEIPTS. SINCE THE SALES MADE BY T HE ASSESSEE WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPTED T HE SALES RECEIPTS OF THE ASSESSEE AS IT IS, THEREFORE, THE AO CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE ASSESSEE AND THE MATERIAL WAS NOT USED FOR ITS SALES. WHAT IS UNDER DISPUTE IS THE PURCHASES FROM T HE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AND CHEQUES HAVE BEEN IS SUED TO THEM. PURCHASES ARE NOT IN DISPUTE BUT THE PARTIES FROM W HOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPUTED AND SUSPICIOUS . THE AO HAD MADE THE ADDITION AS SOME OF THE SUPPLIERS WERE DEC LARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD R EASON FOR MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAK E ANY FURTHER ITA NO.3202/M/2016 SHRI JAI PRAKASH JINDAL, (PROP. OF M/S. THREE A BROTHERS) 4 INVESTIGATION AND MERELY COMPLETED THE ASSESSMENT O N SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE A ND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS A NY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED. THERE WAS NO DETAILED INVESTIGAT ION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECTED IN TH E BANK STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BACK FROM THE SUPPLIERS. MERELY BECAU SE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO OR SOME CONFIRMATION L ETTERS WERE NOT FURNISHED, ONE CANNOT CONCLUDE THAT THE PURCHASES W ERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISIO N OF NIKUNJ EXIMP ENTERPRISES VS. CIT 216 TAXMAN 171 (BOM). TO THIS E XTENT, WE ARE OF THE VIEW THAT IF THE ASSESSEE HAS FULFILLED ITS ONUS OF MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE ADDRESSES OF THE SELLERS THEN IT CANNOT BE PRESUMED THAT SUPPLIER WERE BOGUS SIMP LY BECAUSE THE SELLERS WERE NOT FOUND AT THE GIVEN ADDRESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN THE PERIOD OF PURCHASE TRANSACTION AND PERIOD OF SCRUTINY PROCEEDINGS. THE AO HAS NOT BROUGHT ANY MA TERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSION OF SALES. IT IS B ASIC RULE OF ACCOUNTANCY AS WELL AS OF TAXATION LAWS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTING COST OF PUR CHASE FROM SALES. ESTIMATION OF PROFIT RANGING FROM 12.5% TO 15% HAS BEEN UPHELD BY ITA NO.3202/M/2016 SHRI JAI PRAKASH JINDAL, (PROP. OF M/S. THREE A BROTHERS) 5 THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V S SIMIT P SHETH 356 ITR 451 (GUJ.). RESPECTFULLY FOLLOWING THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 38 TAXMAN 385 (GUJ), WE DISMISS THE DEPARTMENTAL APPEAL. 6. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.10.2017. SD/- SD/- (G. MANJUNATHA) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13.10.2017. * 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 ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.