R R ENTERPRISES, MUMBAI V. ACIT 13(2), MUMBAI

ITA 3240/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9047 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV; R P MEENA
• Assessee Lawyers: A C JHAVERI
• Keywords: Bogus purchase
• Section: 143(3); 153A

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.3240/M/2016 ASSESSMENT YEAR: 2009-10 M/S. R.R. ENTERPRISES, B-9/10, KANMOOR HOUSE, 281/287, NARSHI NATHA STREET, MUMBAI- 400 009 PAN: AAAFR 3906N VS. ACIT 13(2) MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI A.C. JHAVERI, A.R. REVENUE BY : SHRI RAJESH KUMAR YADAV, D.R. & SHRI R.P. MEENA, CIT 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 ASSES SEE AGAINST THE ORDER DATED 05.02.2016 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN BUSINESS OF TRADING OF PHARMACEUTICAL CHEMICALS. D URING THE YEAR THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) FOUND THAT ASSESSEE HAD MADE BOGUS PURCHASES FROM FOLLOWING PA RTIES: ITA NO.3240/M/2016 M/S. R.R. ENTERPRISES 2 SR. NO. NAME OF THE PARTY AMOUNT OF PURCHASE (RS) 1. PRASHVA & CO. 1,08,10,841/- 2. RUCHI IMPEX 1,60,243/- 3. TOTAL 1,09,71,084/- 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.1,09,71,084/-. 4. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS PARTLY ALLOWED THE CLAIM BY OBSERVING AS UNDER: 5.8 IN THE INSTANT CASE, THE APPELLANT IS NOT IN A POSI TION TO PROVE THE EXISTENCE OF THE SUPPLIERS. THERE IS ENOUGH CIRCUMS TANTIAL EVIDENCE CASTING A DOUBT ON THE NATURE OF THE TRANSACTION. I AM OF T HE FIRM BELIEF THAT THE APPELLANT HAD MADE CASH PURCHASES FROM OTHER PARTIE S WHICH WERE NOT RECORDED IN THE BOOKS. THE APPELLANT TOOK ONLY BILLS FROM THESE 2 PARTIES AS ACCOMMODATION TO EXPLAIN THE PURCHASES. HOWEVER, THE ENTIRE PURCHASE FROM THESE 2 PARTIES CANNOT BE ADDED AS BOGUS AND WHAT NEEDS TO BE TAXED IS THE PR OFIT ELEMENT EMBEDDED IN SUCH TRANSACTION. I FIND THAT THE AO HAS DISALLOWED 25% OF THESE BOGUS PURCHASES AND ALSO ESTIMATED GP @ 5.74% OF THE BOGUS PURCHASES. I ALSO FIND THAT IN AY 2009-10, THE AO REOPENED THE ORIGINAL ASSESSMENT ORDER PASSE D U/S 143(3) R.W.S. 153A ON THE SAME ISSUE OF BOGUS PURCHASES. ON REOPENING THE AO REALIZED THAT THE BOGUS PURCHASES HAVE ALREADY BEEN TAXED BY HIM IN T HE ORDER U/S 143(3) R.W.S 153A HENCE DID NOT MAKE ANY ADDITION ON THIS COUNT. ON A CONSPECTUS OF FACTS, I AM OF THE OPINION THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE REASONABLY RESTRICTED TO THE GP RATE OF THE APPELLANT DURING T HE YEAR WHICH IS 5.74%. I THEREFORE DIRECT THE AO TO ESTIMATE THE DISALLOWANC E BY ADOPTING 5.74% OF RS.1,09,71,084. THE DISALLOWANCE MADE BY THE AO IS RESTRICTED TO A SUM OF RS.6,29,740. IN EFFECT THE DISALLOWANCE MADE BY THE AO OF 25% OF THE PURCHASES IS DELETED. GROUND NOS. 1 TO 4 ARE PARTLY ALLOWED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LD. D.R. RELIED UPON THE DECISION OF THE TRIBUNAL, AHME DABAD BENCH IN ITA NO.3240/M/2016 M/S. R.R. ENTERPRISES 3 THE CASES OF SHWETAMBAR STEELS VS. ITO AHMEDABAD AN D GANESH RICE MILLS VS. CIT (294 ITR 316). THE FACTS IN THE PRESENT CASE SHOW THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FR OM WHOM GOODS ARE STATED TO HAVE BEEN PURCHASED. THE SUPPLIERS WE RE FOUND TO BE ENGAGED IN PROVIDING BOGUS BILL WITHOUT ACTUAL DEAL ING OF GOODS. IN THIS REGARD, THE ASSESSEE HAS STATED THAT THEY HAD SUBMITTED QUANTITATIVE DETAILS OF STOCK WITH RESPECT OF THE S ALES WITH PURCHASES FROM THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMITTED THE DETAIL OF CORRESPONDING SALES IN RESP ECT OF THE PURCHASE FROM THE SAID PARTIES. AS MENTIONED ABOVE THE AO HA S NEVER DISPUTED OR EXAMINED THE ASPECT OF SALES RECEIPTS. SINCE THE SALES MADE BY THE ASSESSEE WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPTED THE SALES RECEIPTS OF THE ASSESSEE AS IT IS, THEREF ORE, THE AO CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE ASSESSEE A ND THE MATERIAL WAS NOT USED FOR ITS SALES. WHAT IS UNDER DISPUTE I S THE PURCHASES FROM THE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AN D CHEQUES HAVE BEEN ISSUED TO THEM. PURCHASES ARE NOT IN DISPUTE B UT THE PARTIES FROM WHOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPU TED AND SUSPICIOUS. THE AO HAD MADE THE ADDITION AS SOME O F THE SUPPLIERS WERE DECLARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD REASON FOR MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAKE ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE ASSESSMENT ON SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECO RD 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 AND ITA NO.3240/M/2016 M/S. R.R. ENTERPRISES 4 ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETH ER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SU CH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED. THERE WAS NO DETAIL ED INVESTIGATION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE P AYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY RE FLECTED IN THE BANK STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENC E TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BACK FROM THE SUPPLIERS. MERELY BECAUSE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO OR SOME CONFIRMATION LETTERS WERE NOT FURNISHED, ONE CANNOT CONCLUDE THA T THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORT ED BY THE DECISION OF NIKUNJ EXIMP ENTERPRISES VS. CIT 216 TA XMAN 171 (BOM). TO THIS EXTENT, WE ARE OF THE VIEW THAT IF T HE ASSESSEE HAS FULFILLED ITS ONUS OF MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE ADDRESSES OF THE SELLERS THEN IT CANNOT BE PRES UMED THAT SUPPLIER WERE BOGUS SIMPLY BECAUSE THE SELLERS WERE NOT FOUN D AT THE GIVEN ADDRESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN T HE PERIOD OF PURCHASE TRANSACTION AND PERIOD OF SCRUTINY PROCEED INGS. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE RE IS SUPPRESSION OF SALES. IT IS BASIC RULE OF ACCOUNTANCY AS WELL A S OF TAXATION LAWS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WIT HOUT DEDUCTING COST OF PURCHASE FROM SALES. ESTIMATION OF PROFIT R ANGING FROM 12.5% TO 15% HAS BEEN UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P SHETH 356 ITR 451 (GUJ.). R ESPECTFULLY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF ITA NO.3240/M/2016 M/S. R.R. ENTERPRISES 5 CIT VS. SIMIT P. SHETH 38 TAXMAN 385 (GUJ), WE DIRE CT THE AO TO ESTIMATE THE GP RATE @ 12.5%. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 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.