MEHUL K. MEHTA, MUMBAI V. ITO 15(1)(3), MUMBAI

ITA 3227/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8142 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: MRS MAMT A PARMAR
• Keywords: Bogus purchase; Unexplained expenditure; Peak credit; Deemed to accrue or arise in india; Accommodation entries; Condonation of delay
• Section: 69C; 143(3); 133(6)

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.3227/ MUM/2016 ( / ASSESSMENT YEAR : 2010-11) SHRI MEHUL K. MEHTA, PROP. VAISHNAVI ENTERPRISES ROOM NO. 23, BUILDING NO. 18, KAPOLWADI BUILDING 3 RD PANJARAPOLE LANE, MUMBAI 400 004. / V. INCOME TAX OFFICER 15(1)(3), MUMBAI. ./ PAN : ACJPM 9707 H ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : MRS. MAMTA PARMAR REVENUE BY : SHRI B.S. BIST, DR / DATE OF HEARING : 06-03-2017 / DATE OF PRONOUNCEMENT : 14-03-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 3227/MUM/2016, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 14 TH DECEMBER, 2015 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-30, MU MBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010-11, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSME NT ORDER DATED 28 TH MARCH, 2013 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFT ER CALLED THE AO) U/S 143(3) (II) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 3327/MUM/2016 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS I N ESTIMATING GP AT 17.5% AS AGAINST 7.5% AS DECLARED BY THE APPELLANT IN RESPECT OF PURCHASES FROM TWO PARTIES I.E. BPT TUBE CORPORATIO N AND NATIONAL SALES CORPORATION. 2. THE LEARNED CIT (AL ERRED IN NOT UNDERSTANDING BU SINESS OF ASSESSEE BEFORE MAKING SUCH A HUGE ADDITION. 3. THE LEARNED CIT (AL ERRED IN LAW AND/OR FACTS IN NOT CONSIDERING THE SUBMISSIONS AND EXPLANATIONS FILED BY THE ASSESSE E DURING THE APPEAL PROCEEDINGS BEFORE PASSING THE ORDER. 4. THE LEARNED ASSESSING OFFICER ERRED IN NOT FOLLOW ING ARTICLE 227 OF THE CONSTITUTION OF INDIA 1949, WHICH STATES THE HIGH COURTS HAVE SUPERINTENDENCE OVER ALL COURTS AND TRIBUNALS THROUG HOUT ITS TERRITORIES WHICH MEANS THE DECISION OF HIGH COURT IS BINDING ON ALL LOWER AUTHORITY WITHIN ITS TERRITORIES WHICH, INTER ALIA, INCLUDES IN COME TAX OFFICERS ETC. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN BUSINESS AS DEALERS IN M.S. PIPE AND STRUCTURES AND RUNS A PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF M/S VAISHNAVI E NTERPRISES. 4. AT THE OUTSET, WE FIND THAT THIS APPEAL IS FILED BY THE ASSESSEE LATE BY 54 DAYS, BEYOND THE PERIOD STIPULATED U/S 253(3) OF 19 61 ACT FOR FILING AN APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS DULY FILED AN AFFIDAVIT DATED 05-05-2016 AND APPLICATION DATED 29-04-2016 PRAYING FOR CONDO NATION OF DELAY IN FILING APPEAL LATE BY 54 DAYS. IT IS AVERRED IN AFORE-STAT ED AFFIDAVIT BY THE ASSESSEE THAT HIS FATHER DIED ON 2-12-2015 AND HIS BROTHER H AD LEFT THE COUNTRY AND NEVER CAME BACK LEAVING THE RESPONSIBILITY OF HIS W IFE AND CHILDREN ON THE ASSESSEE, WHICH REASONS CAUSED DISTURBANCES IN THE AFFAIRS OF ASSESSEE FAMILY ITA 3327/MUM/2016 3 AS WELL LED TO DEATH OF HIS FATHER ON 02-12-2015. IN THE AFORE-STATED AFFIDAVIT, THE ASSESSEE SUBMITTED THAT DUE TO THE ABOVE SAID F AMILY PROBLEMS, THE ASSESSEE WAS VERY MUCH DISTURBED AND SHATTERED . IT WAS SUBMITTED THAT THE APPELLATE ORDER DATED 14-12-2015 PASSED BY THE LD. CIT(A) WAS RECEIVED BY OFFICE STAFF OF THE ASSESSEE ON 13 TH JANUARY, 2016 WHICH WERE KEPT BY THEM IN THE CABIN OF THE ASSESSEE ON HIS TABLE. THE SAME WAS NOT INFORMED TO THE ASSESSEE BY OFFICE STAFF OF THE ASSESSEE. THE ASSE SSEE AVERRED IN THE AFORE- STATED AFFIDAVIT THAT HE RESUMED HIS DUTIES IN OR ABOUT SECOND WEEK OF APRIL 2016 AND THEN BECAME AWARE ABOUT THE APPELLATE ORDE R DATED 14-12-2015 PASSED BY LEARNED CIT(A) , BEING RECEIVED BY HIS OF FICE ON 13-01-2016 . IT IS STATED THAT THE ASSESSEE TOOK ACTION FOR FILING OF THE APPEAL BEFORE THE TRIBUNAL, WHICH WAS FILED BELATEDLY BY 54 DAYS ON 06-05-2016. THUS, THE ASSESSEE PRAYED FOR CONDONATION OF DELAY OF 54 DAYS IN FILIN G THIS APPEAL BEYOND TIME STIPULATED U/S 253(3) OF 1961 ACT BEFORE THE TRIBU NAL. THE ASSESSEE RELIED UPON DECISION OF HONBLE SUPREME COURT IN THE CASE OF COLLECTOR , LAND ACQUISITION V. MST KATIJI & ORS. (1987) 167 ITR 047 1(SC) AND SEVERAL OTHER JUDICIAL DECISIONS OF THE HONBLE COURTS WHICH ARE DETAILED IN APPLICATION FOR CONDONATION OF DELAY FILED BY THE ASSESSEE WITH THE TRIBUNAL. 5. LD. D.R. OPPOSED THE CONDONATION APPLICATION AND AFFIDAVIT FILED BY THE ASSESSEE AND SUBMITTED THAT THIS APPEAL SHOULD NOT BE ADMITTED. 6. WE HAVE CONSIDERED CONTENTIONS OF THE ASSESSEE A ND OF THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT LD. CIT(A) HAS PASSED AN APPELLATE O RDER ON 14 TH DECEMBER, 2015 WHICH IS STATED TO RECEIVED BY THE ASSESSEE ON 13 TH JANUARY, 2016. AS PER AFFIDAVIT OF THE ASSESSEE FILED BY THE ASSESSEE , THE FAMILY OF THE ASSESSEE WAS DISTURBED AS HIS BROTHER HAD LEFT THE COUNTRY L EAVING HIS WIFE AND CHILDREN WHICH ARE NOW LOOKED AFTER BY THE ASSESSEE AND DUE TO THIS SAD INCIDENT IN THE FAMILY OF HIS BROTHER LEAVING THE C OUNTRY LEAVING BEHIND HIS ITA 3327/MUM/2016 4 WIFE AND CHILDREN, FATHER OF THE ASSESSEE ALSO DIE D ON 2 ND DECEMBER, 2015 DUE TO THE SHOCK OF LEAVING OF HIS ONE SON COUNTRY LEAVING HIS SONS WIFE AND THEIR CHILDREN. THE ASSESSEE HAS CONTENDED THAT THE SE EVENTS SHATTERED AND DISTURBED HIS NORMAL FAMILY AND BUSINESS LIFE, WHIC H IN OUR CONSIDERED VIEW IS A SUFFICIENT CAUSE WHICH PREVENTED THE ASSESSEE FOR FILING APPEAL IN TIME BEFORE THE TRIBUNAL AS STIPULATED U/S 253(3) OF 1961 ACT B EING A GENUINE CAUSE FOR DELAY IN FILING APPEAL AND UNDER THESE CIRCUMSTANCE S KEEPING IN VIEW SUBSTANTIAL INTEREST OF JUSTICE VIS--VIS TECHNICAL ITIES , WE ARE INCLINED TO CONDONE DELAY OF 54 DAYS IN FILING THIS APPEAL WITH THE TRIBUNAL BY THE ASSESSEE LATE BEYOND THE TIME STIPULATED U/S 253(3) OF 1961 ACT IN THE INTEREST OF JUSTICE. THUS, WE ADMIT THIS APPEAL AND PROCEED TO DECIDE THIS APPEAL ON MERITS. WE ORDER ACCORDINGLY. 7. DURING THE RELEVANT PREVIOUS YEAR UNDER CONSIDER ATION, THE ASSESSEE HAD REPORTED SALES OF RS. 4.90 CRORES AND PURCHASES OF RS. 4.61 CRORES, IN HIS PROPRIETORY CONCERN M/S VAISHNAVI ENTERPRISES. DURI NG THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) OF 1961 ACT, THE ASSESSEE DULY SUBMITTED LIST OF PURCHASE PARTIES, SALE PARTI ES, CREDITORS AND DEBTORS, ETC. .THE A.O. ISSUED NOTICES U/S 133(6) OF 1961 AC T TO VARIOUS PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE BY REGISTERED PO ST TO VERIFY GENUINENESS OF THE PURCHASES . IN RESPECT TO FOLLOWING PARTIES, NOTICES U/S 133(6) OF 1961 ACT SENT BY THE AO COULD NOT BE SERVED TO THE FOLL OWING PARTIES AND THESE NOTICES WERE RETURNED BACK BEING UNSERVED:- SL NO. NAME OF THE PARTY TRANSACTION AMT. 1. BHARAT FORGE 26,40,944 2. BPT TUBE CORPORATION 17,47,051 3. NATIONAL SALES CORPORATION 14,29,227 4. VEERKRIPA ENTERPRISES - ITA 3327/MUM/2016 5 THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE THESE AFORE-SAID FOUR PARTIES ALONG WITH THEIR BOOKS OF ACCOUNTS AND PROVE GENUIN ENESS OF PURCHASES MADE FROM THESE FOUR PARTIES. THE ASSESSEE PRODUCED ONL Y SAMPLE PHOTOCOPIES OF PURCHASE BILLS FOR MATERIAL PURCHASED FROM THESE PA RTIES AS WELL LEDGER EXTRACT OF THESE PARTIES FROM ITS BOOKS OF ACCOUNTS. THE AS SESSEE COULD NOT PRODUCE ALL DETAILS CALLED FOR BY THE AO AND ALSO COULD NOT PRODUCE THESE PARTIES EXCEPT M/S BHARAT FORGE WHO WAS PRODUCED BY THE ASS ESSEE BEFORE THE AO , FROM WHOM THE ASSESSEE HAD MADE PURCHASES . THE STO CK REGISTER WAS ALSO NOT PRODUCED BY ASSESSEE BEFORE THE AO . THE ASSES SEE SUBMITTED THAT PAYMENTS FOR PURCHASES FROM THESE PARTIES WERE MADE BY ACCOUNT PAYEE CHEQUE. THE A.O. OBSERVED THAT THESE PARTIES ARE S USPECTED SALES TAX HAWALA OPERATORS AS PER MAHARASHTRA VAT DEPARTMENT AND THE SE PARTIES WERE NON- EXISTENT AND NEVER SUPPLIED MATERIAL TO THE ASSESSE E RATHER THEY PROVIDED ACCOMMODATION ENTRIES TO THE ASSESSEE AND ISSUED BO GUS INVOICES , HENCE, THE PURCHASES MADE FROM THE SAID PARTIES COULD NOT BE GENUINE, WAS THE OBSERVATION OF THE AO. THE AO OBSERVED THAT MATERI AL HAS NOT BEEN RECEIVED BY THE ASSESSEE FROM THESE PARTIES AND THE MATERIAL SHOWN TO HAVE BEEN PURCHASED FROM THE SAID PARTIES WAS ACTUALLY PURCHA SED IN CASH FROM SOME OTHER PARTIES . THE ASSESSEE ISSUED CHEQUES TO THES E PARTIES WHO PROVIDED ACCOMMODATION ENTRIES BY WAY OF BOGUS BILLS AND REC EIVED BACK CASH FROM THESE PARTIES. THE AO OBSERVED THAT QUANTITATIVE DE TAILS OF STOCK TALLIES. THE AO OBSERVED THAT THE ASSESSEE HAS TAKEN ACCOMMODATI ON ENTRIES FROM THESE BOGUS PARTIES. THE AO OBSERVED THAT PURCHASES FROM THESE PARTIES ARE NOT VERIFIABLE. THE ASSESSEE COULD NOT PROVE THE DELIVE RY OF THE MATERIAL SAID TO HAVE BEEN PURCHASED FROM THESE PARTIES. THE AO OB SERVED THAT DELIVERY DOCUMENTS FOR THE MATERIAL ESPECIALLY THE TRANSPORT ATION RECEIPT WERE NOT PRODUCED. THE AO OBSERVED THAT ASSESSEE HAS NOT COM E OUT WITH DETAILS FROM WHERE THE MATERIAL HAS BEEN PURCHASED AND THE PURCH ASES WERE HELD BY THE AO TO BE NOT GENUINE. THE A.O. MADE ADDITIONS TO TH E TUNE OF RS. 28,57,208/- AS UNEXPLAINED EXPENDITURE U/S 69C OF 1961 ACT BY H OLDING THE SAME TO BE ITA 3327/MUM/2016 6 DEEMED INCOME OF THE ASSESSEE U/S 69C OF 1961 ACT, BY WORKING OUT DISALLOWANCE BASED ON PEAK CALCULATION OF PURCHASE S , OF WHICH DETAILS ARE PROVIDED BY THE AO AS PER WORKING CHART AT PAGE 11 OF THE ASSESSMENT ORDER DATED 28-03-2013 PASSED BY THE AO U/S 143(3) OF 196 1 ACT. 8. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-03-20 13 PASSED BY THE AO U/S 143(3) OF 1961 ACT, THE ASSESSEE FILED FIRST APPEAL BEFORE LEARNED CIT(A). 9. IN APPEAL BEFORE LEARNED CIT(A), THE ASSESSEE C ONTENDED THAT THESE FOUR PARTIES WERE LISTED AS SUSPICIOUS DEALERS BY MAHAR ASHTRA VAT AUTHORITIES. THE MAHARASHTRA VAT AUTHORITIES HAVE RECORDED STATE MENT OF THESE FOUR PARTIES WHEREBY THEY CONFESSED THAT THEY HAVE NOT D ONE ANY BUSINESS AND INVOICES ISSUED ARE ONLY ACCOMMODATION ENTRIES WHER EIN BOGUS BILLS WERE ISSUED . IT WAS SUBMITTED THAT COPIES OF STATEMENT OF THESE PARTIES RECORDED BEFORE MAHARASHTRA VAT AUTHORITIES WERE NOT GIVEN T O THE ASSESSSEE BY THE AO DURING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMIT TED THAT THESE PARTIES DID NOT DEPOSIT VAT WITH GOVERNMENT AND HENCE THEY WERE PUT IN THE LIST OF SUSPICIOUS DEALERS BY MAHARASHTRA VAT DEPARTMENT AN D THE ASSESSEE CANNOT BE BURDENED UNDER INCOME-TAX PROCEEDINGS DUE THEIR FAILURE TO DEPOSIT VAT UNLESS THERE IS DIRECT NEXUS OF THE ASSESSEE BEING PROVED IN THESE BOGUS TRANSACTIONS WHICH THE ASSESSEE CONTENDED THAT IT W AS NOT PROVED. IT WAS SUBMITTED THAT ASSESSEE IS STOCKIST / DEALERS AND I MPORTERS OF M. S. PIPES FITTINGS AND OTHER M S PRODUCTS. THE PIPES ARE PURC HASED IN BULK QUANTITY IN KG. AND THEN SOLD TO CUSTOMERS IN FEET, KGS., PCS. ETC. IN SMALL QUANTITIES . THE ASSESSEE SUBMITTED THAT PAYMENTS ARE MADE FOR T HESE PURCHASES BY ACCOUNT PAYEE CHEQUE. IT WAS SUBMITTED THAT THE ASS ESSEE WAS NOT ALLOWED BY THE AO TO CROSS EXAMINATION THESE PARTIES. THE STAT EMENTS WERE RECORDED AT THE BACK OF THE ASSESSEE BY MAHARASHTRA VAT AUTHORI TIES WAS THE CONTENTION OF THE ASSESSEE BEFORE LEARNED CIT(A) AND HENCE THE SAME CANNOT BE USED AGAINST THE ASSESSEE WITHOUT ALLOWING CROSS EXAMINA TION OF THESE PARTIES. THE ITA 3327/MUM/2016 7 ASSESSEE SUBMITTED THAT MAHARASHTRA VAT DEPARTMENT HAS NOT INITIATED ANY ACTION AGAINST THE ASSESSEE. THERE IS NO INCRIMINAT ING MATERIAL WHICH COULD SUGGEST THAT THE ASSESSEE RECEIVED BACK CASH AGAINS T ACCOUNT PAYEE CHEQUES ISSUED TOWARDS PAYMENT MADE FOR PURCHASE OF THESE M ATERIAL. IT WAS SUBMITTED THAT THE ADDITIONS HAVE BEEN MADE BASED O N SURMISES, CONJECTURES AND PRESUMPTIONS WHICH CANNOT BE SUSTAINED IN THE E YES OF LAW. THE ASSESSEE SUBMITTED THAT DETAILS OF PURCHASE AND SALES WERE S UBMITTED, INVOICES WERE SUBMITTED, SALES WERE ACCEPTED BY THE AO , DETAILS OF PAN, VAT/TIN NUMBER OF THESE PARTIES ETC. WERE SUBMITTED AND PAYMENTS W ERE MADE BY ACCOUNT PAYEE CHEQUES . THUS, IT WAS SUBMITTED THAT THE ASS ESSEE HAS DISCHARGED ITS PRIMARY ONUS. THE LD. CIT(A) BASED UPON SEVERAL CASE LAWS, OBSERV ED THAT IN THE PRESENT CASE, THE ASSESSEE HAS FAILED TO PRODUCE PURCHASE O RDER , TRANSPORTATION BILL, OCTROI RECEIPT, GOODS RECEIPT NOTE AND SUBSEQUENT SALES/MANUFACTURING DETAILS . THE MAHARASHTRA VAT DEPARTMENT HAD CLASS IFIED THESE FOUR PARTIES AS HAWALA DEALERS AND HAS SUBSEQUENTLY FORWARDED TH E INFORMATION TO THE INCOME-TAX DEPARTMENT THAT THE ASSESSEE IS ONE OF T HE BENEFICIARIES . THUS, ONUS IS VERY HEAVY ON THE ASSESSEE TO PROVE WITH IN FALLIBLE EVIDENCE THAT THE PURCHASES ARE GENUINE AND MATERIAL WAS ACTUALLY REC EIVED BY THE ASSESSEE FROM THESE PARTIES. NO EVIDENCE IS PRODUCED BY THE ASSESSEE THAT THE MATERIAL AS TO QUANTITY AND QUALITY AS STIPULATED IN INVOICE S FROM THESE FOUR PARTIES WERE ACTUALLY RECEIVED BY THE ASSESSEE. THERE ARE N O VEHICLE NUMBERS IN THE INVOICES TO PROVE DELIVERY OF MATERIAL. THE DOCUMEN TS SUCH AS PURCHASE ORDER, TRANSPORTATION BILL, OCTROI RECEIPT, GOODS R ECEIPT NOTE WERE NOT SUBMITTED BY THE ASSESSE. IT WAS OBSERVED BY THE LE ARNED CIT(A) THAT A.O. HAS HELD THAT THE PARTIES FROM WHOM THE PURCHASES W ERE MADE BY THE ASSESSEE WAS FOUND TO BE BOGUS AND NON-EXISTENT . T HE AO ALSO OBSERVED THAT THE ASSESSEE PURCHASED THE GOODS FROM OTHER PARTIES IN CASH BUT NOT FROM THESE FOUR NON-EXISTENT PARTIES , AS SALES WERE SHO WN BY THE ASSESSEE AGAINST ITA 3327/MUM/2016 8 PURCHASES ON WHICH INCOME WAS OFFERED FOR TAXATION. THE MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. THE LD. CIT(A) HELD THAT PRO FIT AS EMBEDDED IN THE BOGUS PURCHASES IS TO BE ESTIMATED INSTEAD OF DETER MINING PEAK BALANCE OF SUCH PURCHASES AS WAS DONE BY THE AO TO MAKE ADDITI ON TO INCOME OF THE ASSESSEE, AS THE ASSESSEE HAD PURCHASED MATERIAL FROM SOME UN-KNOW PARTIES. IT WAS OBSERVED BY LEARNED CIT(A) THAT SIN CE THE ASSESSEE IS OFFERING GP OF AROUND 7.5%, THE LD. CIT(A) ESTIMATED GP OF 17.5% ON THESE ALLEGED BOGUS PURCHASES FROM THE PARTIES. THE LEARNED CIT(A ) REFER TO DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SI MIT SHETH (2013) 38 TAXMANN.COM385(GUJ), WHEREIN ON THE IDENTICAL FACTS , THE TRIBUNAL UPHELD ADDITIONS TO THE TUNE OF 12.5% BEING THE PROBABLE P ROFIT ON SUCH ALLEGED BOGUS PURCHASES, WHICH WAS UPHELD BY HONBLE GUJARA T HIGH COURT BY HOLDING THAT IN SUCH CASES PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEES INCOME. THE LD. CIT(A) A CCORDINGLY DIRECTED THE A.O. TO ESTIMATE PROFIT OF 17.5% ON THE TOTAL ALLEG ED BOGUS PURCHASES FROM THESE PARTIES AS THE PROFIT ELEMENT EMBEDDED IN SUC H PURCHASES, WHILE THE LEARNED CIT(A) HELD THAT THE ASSESSEE HAS ALREADY O FFERED FOR TAXATION GP OF 7.5% WHICH SHALL BE REDUCED FROM SUCH ESTIMATED PRO FIT AND ONLY NET ADDITIONS WERE SUSTAINED TO THE TUNE OF 10% OF TOTA L PURCHASES FROM SAID PARTIES, VIDE APPELLATE ORDER DATED 14-12-2015 PASS ED BY LEARNED CIT(A). 10. AGGRIEVED BY THE APPELLATE ORDER DATED 14-12-20 15 PASSED BY LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 11. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARG UED THAT THE ASSESSEE HAD MADE PURCHASES FROM TWO PARTIES NAMELY BPT TUBE CORPORATION AND NATIONAL SALES CORPORATION WHICH WERE IN THE LIST O F SUSPICIOUS DEALERS BY MAHARASHTRA VAT AUTHORITIES WHEREIN ADDITIONS TO T HE TUNE OF RS. 28,57,208/- BASED ON PEAK CALCULATION OF PURCHASES WERE MADE BY THE AO. ITA 3327/MUM/2016 9 THESE PARTIES WERE SUSPECTED TO BE HAWALA DEALERS B Y THE MAHARASHTRA VAT AUTHORITIES. THE A.O. ADDED THE ENTIRE AMOUNT TREA TING THEM AS BOGUS PURCHASES BASED ON PEAK AMOUNT OF PURCHASES . IT I S SUBMITTED THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE A .O. ISSUED NOTICES U/S 133(6) OF 1961 ACT WHICH HAS BEEN RETURNED UNSERVED WITH RESPECT TO FOUR PARTIES AS MENTIONED IN AO ORDER. HOWEVER, M/S BHAR AT FORGE APPEARED BEFORE THE AO AS THE ASSESSEE PRODUCED THE SAID PAR TY, WHILE REST THREE PARTIES COULD NOT BE PRODUCED AS THEY ARE NOT AVAIL ABLE ON THEIR KNOWN ADDRESSES AS MENTIONED IN THEIR INVOICES. IT WAS S UBMITTED THAT ALL DETAILS WERE SUBMITTED. IT WAS SUBMITTED THAT THE LD. CIT(A ) ERRED IN ESTIMATING GP @ 17.5% ON PURCHASES FROM THESE PARTIES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT STOCK REGISTER COULD NOT BE PRODUCED AS THE MATERIAL HAS BEEN PURCHASED ON KG. BASIS WHILE SOLD IN PIECES, FEET OR KG IN SMALL QUANTITIES AND IT WAS NOT POSSIBLE TO RECONCILE THE STOCK. IT WAS SUBMITTED THAT GP RATE OF 7.11% WAS DECLARED IN THE BOOKS OF ACCOUNT. THE LD. CIT(A) ERRED IN ESTIMATING GP @ 17.5% ON PURCHASES FROM THESE PARTI ES. THE LD. COUNSEL SUBMITTED THAT LAST FOUR YEARS GP RATIOS ARE AS UN DER:- ASST. YEAR SALES PURCHASE GROSS PROFIT GP% 2007-08 15347933 15280241 1214130 7.91 2008-09 25904000 28720381 1790221 6.91 2009-10 33736536 31002944 2417746 7.17 2010-11 49026761 46123112 3486031 7.11 THE LD. COUNSEL SUBMITTED THAT LD. CIT(A) ERRED IN APPLYING GP RATIO AT 17.5% ON PURCHASES FROM THESE PARTIES. IT IS SUBMITTED T HAT IN IRON & STEEL INDUSTRY, THE PROFITABILITY RATIOS FOR THE FOUR QUA RTER FOR PREVIOUS YEAR 2009-10 IS AS UNDER(REF CSIMARKET.COM RELIED UPON BY THE AS SESSEE PB/PAGE 1), WHILE AVERAGE COMES TO 8.82% GROSS MARGIN IN %AGE Q1 2009 Q2 2009 Q3 2009 Q4 2009 ITA 3327/MUM/2016 10 15.26% 11.69% 5.4% 2.94% 12. THE LD. D.R. SUBMITTED THAT THE REVENUE HAS NOT FILED APPEAL AGAINST THE ORDER OF THE LD. CIT(A), WHEREIN THE LEARNED CI T(A) HAD GIVEN RELIEF TO THE ASSESSEEE WHEREIN GP RATE OF 17.5% WAS ADOPTED FOR PURCHASES FROM THESE PARTIES INSTEAD OF ADDITION MADE BY THE AO BASED O N PEAK CALCULATION OF PURCHASES. THE GP RATIO OF 17.5% IS APPLIED BY LEAR NED CIT(A) ON BOGUS PURCHASES WHICH IS QUITE REASONABLE, WHILE THE ASSE SSEE HAD ONLY DECLARED GP RATIO OF 7.11% IN ITS BOOKS OF ACCOUNTS. THE LD. C IT(A) HAS ONLY ADDED 10% TO GP W.R.T. BOGUS PURCHASES FROM THESE ACCOMMODATION ENTRY PROVIDERS. IT WAS SUBMITTED THAT LEARNED CIT(A) RIGHTLY RELIED ON DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT SHETH(SUPRA) .LD DR SUBMITTED THAT ASSESSEE HAS NOT SUBMITTED ANY TRANSPORT CHALLAN FO R ACTUAL DELIVERY OF MATERIAL ALLEGEDLY PURCHASED FROM THESE FOUR BOGUS PARTIES. IT WAS SUBMITTED THAT FROM THE DETAILS OF BILLS, THE COLUMN FOR VEHI CLE NUMBER WAS LEFT BLANK IN EACH OF THE INVOICE. IT WAS SUBMITTED THAT NO STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE. 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO P ERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS AS DEALERS IN M.S. PIPE AN D STRUCTURES AND RUNS A PROPRIETARY CONCERN UNDER THE NAME AND STYLE OF M/S VAISHNAVI ENTERPRISES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD RECORDED SALES AT RS. 4.90 CRORES AND PURCHASES WERE TO THE TUNE OF RS. 4 .61 CRORES. THE REVENUE GOT INFORMATION FROM MAHARASHTRA VAT DEPARTMENT THA T ASSESSEE IS BENEFICIARY OF BOGUS PURCHASES MADE FROM HAWALA DEA LERS WHO WERE NOT ENGAGED IN BUSINESS BUT ISSUING BOGUS BILLS AND PRO VIDING ACCOMMODATION ENTRIES. THE AO ISSUED NOTICES TO PARTIES U/S 133(6 ) OF 1961 ACT TO VERIFY GENUINENESS OF PURCHASES AND NOTICES FROM BELOW MEN TIONED FOUR PARTIES WERE RETURNED BACK UN-SERVED: ITA 3327/MUM/2016 11 SL NO. NAME OF THE PARTY TRANSACTION AMT. 1. BHARAT FORGE 26,40,944 2. BPT TUBE CORPORATION 17,47,051 3. NATIONAL SALES CORPORATION 14,29,227 4. VEERKRIPA ENTERPRISES - THESE PARTIES HAVE ALSO GIVEN STATEMENT BEFORE MAHA RASHTRA VAT DEPARTMENT THAT THEY WERE NOT ENGAGED IN BUSINESS BUT WERE ISS UING BOGUS BILLS WHICH WERE IN THE NATURE OF MERELY ACCOMMODATION ENTRIES , OF WHICH THE ASSESSEE WAS ALSO BENEFICIARY. THE AO ASKED THE ASSESSEE TO PRODUCE THESE FOUR PARTIES WHEREIN THE ASSESSEE COULD NOT PRODUCE THREE PARTIE S EXCEPT BHARAT FORGE WHO APPEARED BEFORE THE AO AT THE BEHEST OF THE ASS ESSEE. THE ASSESSEE HAD CONTENDED THAT PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE, HOWEVER, THE ASSESSEE COULD NOT PRODUCE STOCK REGISTER AND CONSU MPTION OF MATERIAL DETAILS ETC. , WHILE SAMPLE COPIES OF PURCHASE BILL S WERE PRODUCED . THE ASSESSEE CONTENDED THAT THE MATERIAL HAS BEEN PURCH ASED ON KG. BASIS WHILE THE SAME IS SOLD IN PIECES, FEET OR KGS IN SMALL QU ANTITIES AND IT WAS SUBMITTED THAT IT IS NOT POSSIBLE TO QUANTITATIVEL Y RECONCILE THE SAME. THE STOCK REGISTER WAS ALSO NOT PRODUCED . THE ASSESSEE HAS NOT MAINTAINED STOCK RECORDS, DELIVERY CHALLANS, GOODS RECEIVED NOTES , OCTROI RECEIPT , LORRY NUMBERS ETC TO SUBSTANTIATE THE GENUINENESS OF THE PURCHASES TO PROVE THAT THERE WAS ACTUAL DELIVERY OF MATERIAL TO THE ASSESS EE , MORE SO IN LIGHT OF INCRIMINATING STATEMENTS OF THESE ALLEGED BOGUS ENT RY PROVIDERS. THE AO BROUGHT TO TAX INCOME COMPUTED BY WAY OF PEAK CALCU LATION OF PURCHASES BY CONSIDERING THE THREE PARTIES WHICH COULD NOT BE PR ODUCED BY THE ASSESSEE BEFORE THE AO AS STATED ABOVE WHEREIN FOURTH PARTY BHARAT FORGE WAS NOT CONSIDERED BY THE AO FOR COMPUTING PEAK PURCHASES V IDE PAGE 11 OF AO ASSESSMENT ORDER DATED 28-03-2013 PASSED U/S 143(3) OF 1961 ACT, WHEREIN ADDITIONS TO THE TUNE OF RS. 28,57,208/- WAS MADE B Y THE AO TOWARDS BOGUS ITA 3327/MUM/2016 12 PURCHASES BASED ON PEAK CALCULATION OF PURCHASES. THE LD. CIT(A) ESTIMATED GP AT THE RATIO OF 17.5% ON ALLEGED BOGUS PURCHASES AS AGAINST 7.11% DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME FILED WITH THE REVENUE , WHEREIN IT WAS HELD BY THE LEARNED CIT(A) THAT PROF IT EMBEDDED IN PURCHASES WHICH WERE PURCHASED FROM HAWALA OPERATORS ARE TO BE ESTIMATED AS THE ASSESSEE DID PURCHASED THESE MATERIAL ALTHOUGH FROM OTHER DEALERS IN CASH, AS SALES WERE ACCEPTED , BUT THE PURCHASES WERE MAD E FROM OTHER PARTIES BY MAKING PAYMENT IN CASH, WHILE BOGUS BILLS WERE ONLY SOURCED FROM THESE FOUR PARTIES. THE ASSESSEE HAS PRODUCED FOUR YEARS GP R ATIO AS DECLARED TO REVENUE IN RETURN OF INCOME FILED WITH REVENUE, WHI CH IS AS UNDER:- ASST. YEAR SALES PURCHASE GROSS PROFIT GP% 2007-08 15347933 15280241 1214130 7.91 2008-09 25904000 28720381 1790221 6.91 2009-10 33736536 31002944 2417746 7.17 2010-11 49026761 46123112 3486031 7.11 THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN IRON & STEEL INDUSTRY, THE PROFITABILITY RATIOS FOR THE FOUR QUARTER FOR P REVIOUS YEAR 2009-10 IS AS UNDER(CSIMARKET.COM), WHEREIN AVERAGE GP COMES TO 8 .82% FOR FINANCIAL YEAR 2009-10 , AS UNDER:- GROSS MARGIN IN %AGE Q1 2009 Q2 2009 Q3 2009 Q4 2009 15.26% 11.69% 5.4% 2.94% IN VIEW OF INCRIMINATING INFORMATION RECEIVED BY RE VENUE FROM HAWALA DEALERS WHO ARE MERELY ENTRY OPERATORS PROVIDING ACCOMMODAT ION BOGUS INVOICES, THE ONUS HAS SHIFTED BACK TO THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTION OF PURCHASE OF MATERIAL AS INCRIMINATIN G INFORMATION HAS BEEN ITA 3327/MUM/2016 13 RECEIVED BY REVENUE THAT THE ASSESSEE IS BENEFICIAR Y OF BOGUS PURCHASE BILLS/ ACCOMMODATION ENTRIES PROVIDED BY HAWALA OPERATORS . THE PURCHASES ARE MADE BY THE ASSESSEE AND AMOUNTS ARE STANDING IN TH E BOOKS OF THE ASSESSEE AND ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENES S OF THE PURCHASE TRANSACTION. WE HAVE OBSERVED THAT THE ASSESSEE CO ULD NOT PRODUCE THESE THREE PARTIES EXCEPT BHARAT FORGE DESPITE BEING CAL LED BY THE AO . THE NOTICES ISSUED U/S 133(6) OF 1961 HAD RETURNED UN-SERVED AS THESE PARTIES DO NOT EXIST ON THE ADDRESSES GIVEN BY THEM. THE ASSESSEE COULD NOT PRODUCE STOCK REGISTER AND ALSO COULD NOT PROVE ACTUAL DELIVERY O F MATERIAL BEING PURCHASED FROM THESE HAWALA DEALERS AS OCTROI RECEIPTS, GOOD S RECEIPT NOTE, LORRY RECEIPTS, PURCHASE ORDERS COULD NOT BE PRODUCED NOR INVOICES HAD ANY DETAILS OF MOVEMENT OF GOODS TO ASSESSEE FROM THE ALLEGED H AWALA DEALERS,, HOWEVER, THE ASSESSEE DID PRODUCED THE SAMPLE COPIES OF PURC HASE INVOICES AND ALSO SUBMITTED THAT PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE . UNDER THE FACTUAL MATRIX OF THE CASE , WE HAVE OBSERVED THAT THE LEARNED CIT(A) RIGHTLY HELD THAT PROFIT EMBEDDED IN THESE PURCHASES ARE TO BE ESTIMATED WHEREIN THE LEARNED CIT(A) ESTIMATED GP @ 17.5% ON ALLEGED BOGU S PURCHASES AS AGAINST 7.11% DECLARED BY THE ASSESSEE. WE ARE IN PRINCIPL E AGREEABLE WITH THE APPROACH OF LEARNED CIT(A) THAT PROFITS ARE TO BE E STIMATED AS EMBEDDED IN THESE ALLEGED BOGUS PURCHASES WHICH VIEW IS CONSIST ENT WITH THE VIEW OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. S IMIT SHETH(SUPRA) . SIMILAR VIEW WAS TAKEN BY MUMBAI-TRIBUNAL IN THE CASE OF SH . ASHWIN PURSHOTTAM BAJAJ V. ITO IN ITA NO. 4736/MUM/2014 VIDE ORDERS D ATED 14-12-2016 ( WHEREIN ONE OF US BEING ACCOUNTANT MEMBER WAS PARTY TO SAID ORDER) , WHEREIN TRIBUNAL HELD AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS AN INDIVIDUAL RUNNING A PROPRIETORSHIP FIRM NAMELY M/S THE SHOE BOX INC RETAIL STORE OF FOOTWEAR, BAGS, BELTS, WALLETS AND LEATHER GOODS, ITA 3327/MUM/2016 14 BOUTIQUE ETC. HAVING SHOPS AT DIFFERENT PLACES , AN D OFFICE AT MUMBAI. INFORMATION WAS RECEIVED BY THE AO FROM THE SALES T AX AUTHORITIES, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAS MAD E BOGUS PURCHASES TO THE TUNE OF RS. 1.13 CRORES FROM FOLLO WING FOUR PARTIES WHO ARE IN THE LIST OF HAWALA DEALERS GIVING ACCOMMODAT ION ENTRIES WITHOUT SUPPLYING ANY GOODS:- S NO. NAME OF PARTIES TIN FINANCI AL AMOUNT YEAR 1 ROHIT ENTERPRISES 27020680974V 2009 -10 RS. 8,84,584 2 DEEP ENTERPRISES 27750595164V -DO- RS. 18,09,710 3 KWALITY ENTERPRISES 27790284742V -DO- RS. 60,33,496 4 V3 ENTERPRISES 27860613194V -DO- RS. 26,16,988 TOTAL RS.1,13,44,778/- THE AO ISSUED NOTICES U/S 133(6) OF THE ACT TO THE ABOVE STATED PARTIES TO SEEK RELEVANT INFORMATION/DOCUMENTS BUT THE NOTICES WERE RETURNED UN- SERVED. THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE THESE FOUR PARTIES BUT THE ASSESSEE COULD NOT PRODUCE THE PARTIES FROM WHOM THE PURCHASES WERE MADE. THE AO MADE ADDITIONS U/S 69C OF THE ACT OF THE PEAK CREDIT OUTSTANDING TO BE PAYABLE TO THESE FOUR PARTIES DUR ING THE YEAR TO THE TUNE OF RS.1,31,88,227/- AS AGAINST PURCHASES OF RS .1,13,44,778/- . THE CREDIT FOR PURCHASES FROM THESE FOUR PARTIES OF RS. 1,13,44,778/- ARE APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE ASSESSEE HAS TO DISCHARGE THE PRIMARY ONUS AS TO THE GENUINENESS AN D BONAFIDE OF THE TRANSACTION OF PURCHASE OF GOODS. IT IS OBSERVED TH AT THE A.O. HAS MADE ADDITION OF THE ENTIRE PURCHASES AMOUNT TO RS. 1.13 CRORES BY MAKING ADDITIONS OF RS. 1,31,88,227/- BEING PEAK CREDIT PA YABLE DURING THE YEAR FOR PURCHASES TO THESE PARTIES WHICH INCLUDED BALAN CE OF RS.18,43,451/- FOR PURCHASES MADE IN THE EARLIER YEAR, WHILE THE A O HAS , HOWEVER , NOT DOUBTED THE SALES MADE BY THE ASSESSEE AGAINST THES E PURCHASES. THE ASSESSEE HAS RECONCILED THE QUANTITATIVE DETAILS OF THE STOCK REFLECTED IN THESE PURCHASES WITH QUANTITATIVE DETAILS OF STOCK AS PER SALE INVOICES. THE A.O. HAS DOUBTED THE PURCHASES FROM THESE FOUR ALLEGED ACCOMMODATION ENTRY PROVIDERS BEING HAWALA DEALERS AS CONCLUDED BY SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA T O BE BOGUS PURCHASES, THAT THESE FOUR PARTIES ONLY PROVIDED AC COMMODATION BILLS AND THE GOODS WERE NEVER SUPPLIED BY THESE PARTIES AND THE ASSESSEE ALLEGEDLY MADE PURCHASES FROM SOME OTHER PARTIES FO R WHICH PAYMENTS WERE MADE THROUGH UNDISCLOSED INCOME. THUS, THE A.O . OBSERVED THAT THE ASSESSEE HAS PURCHASED THE MATERIAL FROM SOMEO NE ELSE WHILE BOGUS BILLS WERE ORGANIZED BY THESE HAWALA DEALERS, HENCE , SECTION 69C OF THE ACT WAS INVOKED BY THE AO AND ADDITIONS WERE MADE B Y THE AO. THE CONCLUSION OF THE LD. CIT(A) THAT THE ASSESSEE HAS PURCHASED MATERIAL FROM SOME OTHER DEALERS BUT QUANTITATIVE RECONCILIA TION OF THE STOCK WAS DULY DONE BY THE ASSESSEE OF THE SALE AND PURCHASE AND HENCE THE PROFIT ELEMENT IN THIS ACCOMMODATION ENTRIES ARE TO BE ADD ED TO THE INCOME ITA 3327/MUM/2016 15 CANNOT BE FAULTED . THE LD. CIT(A) RESTRICTED THE A DDITION BY ESTIMATING GP RATIO OF 12.5% OF RS. 1,13,44,778/- BEING PURCHA SES FROM THESE ALLEGED FOUR ACCOMMODATION ENTRY PROVIDERS. WE DO N OT FIND ANY INFIRMITY IN THE WELL REASONED ORDER OF THE LD. CIT (A) WHEREBY NET PROFIT WAS ESTIMATED WHICH WAS A REASONABLE ESTIMATION MAD E BY LEARNED CIT(A) AND WE SUSTAIN/AFFIRM THE ORDER OF LEARNED C IT(A). IN THE RESULT , WE DISMISS BOTH THE APPEAL OF THE ASSESSEE AS WELL OF REVENUE. WE ORDER ACCORDINGLY WE DONOT FIND ANY INFIRMITY IN THE WELL REASONED AP PELLATE ORDER OF LEARNED CIT(A) WHICH WE ARE INCLINED TO AFFIRM/SUSTAIN EXCE PT THAT , IN OUR CONSIDERED VIEW , THE END OF JUSTICE WILL BE MET IN THE INSTAN T CASE IF GP IS ESTIMATED TO TUNE OF 12.5% OF THE PURCHASES FROM THESE ALLEGED H AWALA OPERATORS WHICH WILL COVER ANY LEAKAGE OF REVENUE BY WAY OF VAT, CO MMISSION ETC. . THUS, AS COMPARED TO THE GP RATIO AT 7.11% DECLARED BY THE A SSESSEE, WE ARE ESTIMATING GP RATIO AT THE RATE OF 12.5% ON THE SAI D BOGUS PURCHASES WHEREIN THE ASSESSEE WILL BE ALLOWED CREDIT OF DECLARED GP RATIO OF 7.11% AND NET ADDITION TO GP RATIO SHALL BE TO THE TUNE OF 5.39% ON BOGUS PURCHASES, HENCE , WE ALLOW PARTIAL RELIEF TO THE ASSESSEE.WE ORDER ACCORDINGLY. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 3227/MUM/2016 FOR ASSESSMENT YEAR 2010-11 IS PARTLY ALLOWED AS IN DICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2017. # $% &' 14-03-2017 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 14-03-2017 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 3327/MUM/2016 16 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI