ITO WD 1(5), KALYAN V. HASMUKH JAGSHI VISARI, THANE

ITA 3354/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0146 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Bogus purchase; Permanent establishment; Question of law
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 3354 / MUM/20 1 6 & ITA NO.3355/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2011 - 12 ) ITO WD 1(5) 1 ST FLOOR, MOHAN PLAZA WAYALE NAGAR, KALYAN VS. SHRI HASMUKH JAGSHI VISARI 201, VAGAD APPT., NR. JANAM HOSPITAL CHARAI, THANE PAN/GIR NO. AAAPV9059L APPELLANT ) .. RESPONDENT ) ITA NO. 2303/ MUM/20 16 & ITA NO.2302/MUM/2016 ( ASSESSMENT YEAR : 2009 - 10 & 2011 - 12 ) SHRI HASMUKH JA GSHI VISARI 201, VAGAD APPT., NR. JANAM HOSPITAL CHARAI, THANE VS. ITO WD 1(5) 1 ST FLOOR, MOHAN PLAZA WAYALE NAGAR, KALYAN PAN/GIR NO. AAAPV9059L APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI V. VIDHYADHAR ASSESSEE BY SHRI MANI J AIN DATE OF HEARING 03 / 08 /201 7 DATE OF PRONOUNCEME NT 29 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 2, THANE DATED 2902/2016 FOR A.Y. 2009 - 10 AND 2011 - 12 IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S. 147 OF THE IT ACT. 2. TH E FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD, CIT (A) HAS ERRED IN RELYING ON THE DECISION OF SUPREME COURT IN THE CASE OF KANCHWALA GEMS VS. JCIT 288 ITR 10(SC) AND HON'BLE HIGH COURT' S DECISION IN THE CASE OF VIJAY PROTEIN , SANJAY OIL CAKE INDUSTRIES ETC.. ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT (A) ERRED IN NOT FOLLOWING THE ORDER OF ITAT, PUNE ITA NO. 1411 - 1415 DATED 20.02.2015 IN THE CASE O F M/S. KOLTE PATIL DEVELOPERS LTD. WHEREIN 100% ADDITION OF BOGUS PURCHASE WAS CONFIRM. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE TO THE EXTENT OF SUPPRESSED G.P. OUT OF TOTAL BOGUS PU RCHASES EVEN THOUGH . (III) THE ASSESSEE COULD NOT PRODUCE PRIMARY EVIDENCES LIKE OCTROI RECEIPTS DELIVERY CHALLAN ETC. EVIDENCE TO PROVE THE GENUINENESS OF THE PURCHASES BEFORE THE AO AND BEFORE CIT (A). (IV) THE AFFIDAVITS FILED BY ENTRY PROVIDERS BEFORE SALES TAX AUTHORITIES CANNOT BE IGNORED HAVING EVIDENTIARY VALUE. 4. THE ORDER OF THE CIT (A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPEL LANT CRAVES LEAVE TO ADD, AMEND , ALTER OR DELETE ANY GROUND OF APPEAL. 3. ASSESSE E HAS TAKEN SIX GROUNDS IN THE APPEAL, BUT THE ISSUE REVOLVES AROUND ADDITION UPHELD TO THE EXTENT OF 12.5% IN RESPECT OF BOGUS PURCHASES. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5. BRIEFLY STATED FACTS OF THE CASE ARE THAT IN THESE CASES THE RETURN OF INCOME, DECLARING TOTAL INCOME AT RS. 12,68,920/ - (A,Y. 2009 - 10) AND RS.1 2,65,525/ - (A.Y.2011 - 12), WERE FILED ON 26.09.2009 AND 13.09.2011, RESPECTIVELY, AND THE SAME WERE PROCESSED U/S 143(1) OF THE ACT THE ASSESSEE IS PROPRIETOR OF M/S MAHAV IR PAPER CUTTING, WHICH, IS ENGAGED IN THE BUSINESS OF TRADING OF ALL KINDS OF PAPERS ON WHOLE - SALE BASIS. THE RE - ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE ACT, WERE FINALIZED ON 21.03.2014, AT TOTAL INCOME OF RS 5,72,21,130/ - (A.Y.2009 - 10) A ND RS.6,27,61,670/ - (A.Y.2011 - 12), AFTER MAKING THE DISALLOWANCE OF RS 5,59,52,213/ - , AND RS.6,14,96,149/ - , RESPECTIVELY, ON ACCOUNT OF BOGUS PURCHASES. ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 3 6 . BY THE IMPUGNED ORDER CIT(A) UPHELD ADDITION OF 12.5% AFTER OBSERVING AS UNDER: - 7. 1 HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE AO, SUBMISSIONS OF THE LD AR AND MATERIAL PLACED ON RECORD. THE LD. A.R.'S CLAIM IN RESPECT OF PURCHASES FROM M/S. TARA ENTERPRISES IS FOUND TO BE IN ORDER THEREFORE, THE FIGURE OF RS. 1,14,55,88 6/ - NEEDS TO BE REPL ACED BY RS. 71,37,000 / - . ACCORDINGLY, THE DISALLOWANCE OF HAWALA PURCHASES, FOR AY 2009 - 10, IS WORKED OUT AT RS. 5,16,33,327/ - , AS AGAINST RS. 5,59,52,213/ - DISALLOWED BY THE A.O. 7.1 AS REGARDS THE CLAIM OF LD. A.R. THAT HE HAS F URNISHED DETAILS OF QUANTITY PURCHASED AND SOLD PARTY - WISE, IN RESPECT OF VARIOUS ITEMS, TRADED DURING THE YEARS, IS CONCERNED IT IS NOTICED THAT THE SAME HAVE BEEN PREPARED FROM THE BILLS/DATA AVAILABLE ON THE COMPUTER & IN COMPLIANCE THE LD. A.R. COULD NOT PRODUCE STOCK REGISTERS, ITEM WISE/PARTY - WISE, FOR VERIFICATION. AS REGARDS THE CLAIM OF THE APPELLANT THAT HE HAS FILED FEW CONFIRMED COPY OF LEDGER ACCOUNTS IS CONCERNED, IT IS NOTICED THAT THE LD. A.R. HAS FILED THE STEREO TYPED COMPUTER GENERATED L EDGER ACCOUNTS, HAVING SIMILAR STAMPS/SAME PEN INK, IN ALL SUCH ACCOUNTS. THE LD. A.R. HOWEVER DID NOT PRODUCE ORIGINAL COPIES OF THESE LEDGER ACCOUNTS, FOR FURTHER VERIFICATION. IN ORDER TO VERIFY THE GENUINENESS OF THESE LEDGER ACCOUNTS, THE LD. A.R, WAS REQUESTED TO FURNISH THE CURRENT MAILING ADDRESSES AND THEIR BANK ACCOUNT DETAILS. THE LD. A.R. HOWEVER, COULD NOT FURNISH THESE DETAILS INCLUDING DETAILS OF BANK ACCOUNTS OF HAWALA PARTIES IN WHOSE ACCOUNTS THE PAYMENT THROUGH RTGS/NEFT WERE MADE. IN THE ABSENCE OF THESE DETAILS, IT IS NOT POSSIBLE FOR TRIE DEPARTMENT TO ASCERTAIN THE GENUINENESS OF PURCHASES AFFECTED FROM THE ABOVE HAWALA PARTIES, THE LD. AR COULD NOT PROVE THE FACT THAT WHEN THESE ITEMS WERE AVAILABLE FROM THE REGULAR SUPPLIERS, THEN WH AT COMPELLED HIM TO BUY PART OF THE SAID GOODS FROM THESE HAWALA PARTIES. IN ORDER TO ARRIVE AT LOGICAL CONCLUSION, ON THE ISSUE UNDER DISPUTE, THE FINDINGS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S JANSAMPARK ADVERTISING AND MARKETING (P) LTD , ARE WORTH MENTIONING HERE, WHEREIN, INTER - ALIA HELD AS UNDER: - THE AO HERE MAY HAVE FAILED TO DISCHARGE HIS OBLIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGICAL CONCLUSION. BUT CIT(APPEALS), HAVING NOTICED WANT OF PROPER INQUIRY, COULD N OT HAVE CLOSED THE CHAPTER SIMPLY BY ALLOWING THE APPEAL AND DELETING THE ADDITIONS MADE. IT WAS ALSO THE OBLIGATION OF THE FIRST APPELLATE AUTHORITY) AS INDEED OF I TAT, TO HAVE ENSURED THAT EFFECTIVE INQUIRY WAS CARRIED ......,................' KEEPING I N VIEW THE ABOVE RATIO OF THE HON'BLE DELHI H.C. AND SUBMISSIONS OF THE LD. AR, THE APPELLANT WAS REQUESTED TO RECONCILE THE QUANTITATIVE/ QUALITATIVE DETAILS, ITEM - WISE MONTH TO MONTH - OP, STOCK, PURCHASES OF MATERIAL, AND SALES AFFECTED PARTY - WISE. THE LD. I AR, FURNISHED THESE DETAILS, ON THE BASIS OF BILLS OF PURCHASES AND SALES MAINTAINED,' DETAILS MAINTAINED ON THE COMPUTER. THE APPELLANT HOWEVER, COULD NOT PRODUCE STOCK REGISTERS, REFLECTING DATE WISE, PURCHASE AND SALES OF GOODS, AFFECTED ITEM - WISE AND PARTY - WISE. IN THE AUDIT REPORT ALSO, THE QUANTITATIVE DETAILS OF OPENING STOCK, PURCHASES, TOTALS, SALES, CLOSING STOCK, IS NOT REPORTED BY THE AUDITOR. THE AUDITOR ALSO HAS NOT CERTIFIED THE QUANTITATIVE DETAILS, REQUIRED TO BE REPORTED HI COLUMN 28 (A) OF THE FORM NO. 3CD, ENCLOSED WITH THE RETURN OF INCOME. IN THE ABSENCE OF ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 4 THESE DETAILS, IT IS NOT POSSIBLE FOR THE DEPARTMENT TO ASCERTAIN THE CORRECTNESS OF THE QUANTITATIVE DETAILS SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS. THE LD. AR OF THE APPELLANT, LIAS SHOWN HIS INABILITY TO FILE THE CURRENT COPIES OF CONFIRMED LEDGER ACCOUNTS, THEIR CURRENT MAILING ADDRESSES, THEIR BANK DETAILS AND ALSO REFUSED TO PRODUCE HAWALA PARTIES, FOR EXAMINATION, IN PERSON. THE AUTHENTICITY OF LEDGER ACCOUNT S, FURNISHED BY THE APPELLANT IS ALSO NOT VERIFIABLE, IN THE ABSENCE OF ABOVE DETAILS. IN VIEW OF THESE FACTS THE ACCOUNTS OF THE APPELLANTS ARE NOT COMPLETE IN EVERY RESPECT, WHEREFROM THE CORRECT AMOUNT OF PROFIT COULD BE DEDUCED, AS PER PROVISIONS OF SE CTION 145(3) OF THE ACT, HENCE THE ACCOUNTS ARE HEREBY REJECTED. CONSIDERING THESE FACTS, THE CONTENTION OF THE LD. AR, IS NOT TENABLE, THEREFORE REJECTED, IN VIEW OF THE FOLLOWING REASONS/ FACTS/DEFECTS: - . A. THE APPELLANT'S CLAIM THAT THE PAYMENTS TO THE HAWALA PARTIES HAVE BEEN MADE THROUGH BANKING CHANNELS, IS NOT TENABLE AS HAWALA PARTIES HAVE DULY ADMITTED IN THEIR STATEMENT / AFFIDAVIT THAT AFTER DEDUCTING THEIR DUE COMMISSION I.E. APPROXIMATELY 1%, THEY HAVE REFUNDED BACK THE BALANCE CASH TO T HE BUYERS. B. IT IS THE DUTY OF THE APPELLANT TO JUSTIFY THE GENUINENESS OF PURCHASES, BY FURNISHING NECESSARY SUPPORTING DOCUMENTS, BANK STATEMENT, CONFIRMATION, DELIVERY CHALLAN, TRANSPORT RECEIPTS ETC. AND PRODUCE THE PARTIES FOR EXAMINATION. EVEN DURI NG THE COURSE OF APPELLATE PROCEEDINGS, THE A PPELLANT, NUMBER OF TIMES, WAS ASKED TO FILE ABOVE DETAILS AND PRODUCE PARTIES FOR EXAMINATION, BUT FAILED TO DO SO. NO TRANSPORT / OCTROI RECEIPTS WERE FILED TO JUSTIFY GENUINENESS OF PURCHASES. C. AS REGARDS THE APPELLANT'S CLAIM THAT THERE CANNOT BE ANY SALES WITHOUT THERE BEING C ORRESPONDING PURCHASES, IS ALSO NOT TENABLE AS THE APPELLANT COULD NOT RECONCILE THE QUANTITY WISE DETAILS OF PURCHASES FROM THESE HAWALA PARTIES VIS. A VIS. SALES THEREOF. THE LD A R WAS ALSO NOT ABLE TO RECONCILE THE STOCK. D. THE APPELLANT COULD NOT PRODUCE PROPER VERIFIABLE DOCUMENTS WHICH COULD PROVE DELIVERY OF GOODS VIS. A VIS. CORRESPONDING SALES THEREOF. ON THE OTHER HAND, IN THE CASE OF REGULAR PURCHASES, ON THE SAME SET O F CIRCUMSTANCES, THE DEPARTMENT H AD ACCEPTED SUCH PURCHASES WITHOUT QUESTIONING THEIR GENUINENESS, AS ALL RELEVANT DOCUMENTS / RECORDS HAVE DULY BEEN MAINTAINED BY THE APPELLANT. E. IF, THE PRACTICE OF BOOKING OF BOGUS BILLS IS LEGALIZED, BY DISALLOWING NOMINAL PERCENTAGE OR ESTIMATING NOMINAL RATE OF GP / NP OF A PARTICULAR TRADE, THEN THIS MAY LEAD TO PROVIDE AN EASY WEAPON IN THE HANDS OF THE MANIPULATIVE ASSESSEE TO SUPPRESS / MANIPULATE THEIR PROFIT, AS AND WHEN SO WARRANTED. F. THE PRACTICE OF OB TAINING OF FAKE BILLS TO SUPPORT THE CLAIM OF BOGUS / UNVERIFIED PURCHASE BEING FOLLOWED BY THE LARGE NUMBER OF ASSESSES. THIS MALPRACTICE IS IN THE OPERATION FOR QUITE SOME TIME AND IS USED BRAZENLY TO SUPPRESS THE PROFITS BY OBTAINING BOGUS / PAPER PURCH ASE BILLS (WITHOUT MAKING ACTUAL PURCHASE OF GOODS) AND THEREBY EVADING PAYMENT OF LEGITIMATE TAXES TO GOVERNMENT EXCHEQUER. THERE EXISTS AN UNHOLY NEXUS BETWEEN THE BOGUS BILL PROVIDERS AND BUSINESSMEN ENGAGED IN THE VARIOUS TRADES. THE EFFECT OF THIS MA LPRACTICE IS NOT ONLY OF VERY SERIOUS NATURE BUT ALSO MULTI - DIMENSIONAL. ON ONE SIDE, I T DISHEARTENS THE HONEST TAX PAY ERS W HO DO NOT RESORT TO SUCH MALPRACTICE AND PAY THEIR LEGITIMATE TAXES HONESTLY. ON THE OTHER S IDE, I T EMBOLDENS THE DISHONEST TAX PA YERS WHO R ESORT TO SUCH PRACTICE . RESULTANT LY, THE LEAKAGE OF THE REVENUE TURNS OUT TO A NATURAL CASUALTY. ANY LENIENT APPROACH I N THE MATTER WILL NOT SERVE THE CAUSE OF JUSTICE AND G UILTY WILL NEITHER DETER NOR MEN D THEIR UNETHICAL, SPURIOUS AND OBJECTION ABLE WAYS IN FUTURE AS WELL. G. ONUS ON THE ASSESSEE TO PROVE THE CLAIM OF EXPENSES THE ASSESSEE HAS DEBITED THE PURCHASES IN TRADING ACCOUNT (INCLUDING THE BOGUS/ UNVERIFIED PURCHASES) AND CLAIMED THE DEDUCTION FOR EXPENSES. SINCE THE EXPENDITURE HAS B EEN CLAIMED BY THE ASSESSEE AND THE PRIMARY FACTS ARE IN APPELLANT'S KNOWLEDGE, THE 'PRIMARY ONUS' LIES ON THE ASSESSEE TO PROVE THAT THE PURCHASES CLAIMED BY HIM ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 5 ARE GENUINE AND WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FOR THIS PURPOSE, THE ASS ESSEE HAS TO LEAD THE EVIDENCE TO SHOW THAT THE EXPENDITURE HAS ACTUALLY BEEN INCURRED BY IT AND THE SAME IS FOR GENUINE BUSINESS NEEDS. HERE, IF THE ASSESSEE CLAIMS THAT PURCHASES ARE MADE FROM THE ALLEGED BOGUS PARTY THEN IT IS THE RESPONSIBILITY OF TH E ASSESSEE TO ESTABLISH THAT (A) PARTY IS EXI STENCE (B) PARTY IS CAPABLE OF SUPPLY OF GOODS AND (C ) PARTY HAS ACTUA LLY SUPPLIED THE GOODS (D) GOODS SO RECEIVED HAD ACTUALLY BEEN FO R BUSINESS AND DECLARED AS PA RT OF SALE FOR THE YEAR. IF THE ASSESSEE IS AS KED TO PRODUCE THE P ARTI E S FOR VE R IFIC ATION THEN IT IS TH E DUTY OF THE ASSESSEE TO DO SO TO ESTABLISH THE GENUINENESS OF THE CLAIM OF THE EXPENSE. IN THESE CASES, THE ASSESSEE HAS TRIED TO CLAIM THAT THEY HAVE DISCHARGED THEIR ONUS BY DOING THE FOLLOWI NG: (I) BY SUBMITTING THE NAME, ADDRESS, PAN (II) BY CLAIMING THAT PAYMENTS WERE THROUGH BANKING CHANNELS (III) BY CLAIMING THAT THE PURCHASES ARE REFLECTED IN THE BOOKS OF ACCOUNTS. CONSIDERING THE FACTS OF THE CASES UNDER CONSIDERATION, IT CAN SAFELY BE CONCLUDED THAT ASSESSEE HAD FAILED IN THEIR EFFORTS IN DISCHARGING THE ONUS CAST UPON THEM. MERELY FILING NAME, ADDRESS, PAN & PAYMENTS BY CHEQUE WILL NOT DISCHARGE HIM FROM THE ONUS ESPECIALLY WHEN THE DEPARTMENT HAD RECEIVED SPECIFIC MATERIAL / INFORMATION FROM THE SALES - TAX / VAT DEPARTMENT, WHEREIN THESE SUPPLIERS, ON OATH HAD ADMITTED THE FACT THAT THEY HAVE MERELY PROVIDED ENTRY / ISSUED BILLS WITHOUT PHYSICALLY DELIVERING ANY GOODS. CASE LAWS RELIED TO SUPPORT THE STAND OF THE DEPARTMENT! I N THE CASE OF CIT V/S GOLCHA PROPERTIES (PVT.) LTD. 227 ITR 391 (RAJ) IT WAS HELD THAT THE GENUINENESS OF TRANSACTION COULD BE DECIDED ON THE BASIS OF PRIMARY FACTS ON RECORDS. THE DEPARTMENT IS NOT REQUIRED TO LEAD A CLINCHING EVIDENCE TO PROVE THAT PURCH ASES ARE BOGUS. THE ONUS OF PROOF AT ALL RELEVANT TIMES RESTS UPON THE ASSESSEE. IT IS FOR THE ASSESSEE TO ESTABLISH BY EVIDENCE THAT A PARTICULAR ALLOWANCE IS JUSTIFIED. THE LAW DOES NOT PRE SCRIBE ANY QUANTITATIVE TEST TO FIND O UT WHETHER THE ONUS IN A PARTICULAR CASE HAS BEEN DULY DISCHARGED. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES / SITUATIONS OF THE CASE [ASSAM PESTICIDES & AGRO CHEMICALS V. CIT (1997) 227 ITR 846, 851, 852 (GAUH)]. - MERE PAYMENT BY A/C PAYEE CHEQUE IS NOT SACROSANCT IT WO ULD NOT MAKE OTHERWISE NON - GENUINE TRANSACTION GENUINE. CIT V/S. PRECISION FINANCE PVT. LTD. 208 ITR 465 (CAL). - EVEN IN THE CASE OF M/S. KANCHWALA GEMS V/S JCIT UPHELD BY SC 288 ITR 10 (SC), HON'BLE ITAT HAD HELD THAT EVEN ACCOUNT PAYEE CHEQUE IS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE PURCHASES. IN THE CASE OF CIT VS MOTOR GENERAL FINANCE LTD. 254 ITR 449 (DEL), IT WAS HELD THAT SINCE THE ASSESSEE, DESPITE SEVERAL OPPORTUNITIES GRANTED, DID NOT PRODUCE THE RELEVANT DOCUMENTS, AN ADVERSE IN FERENCE HAD TO BE DRAWN AGAINST THE ASSESSEE. AS THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENT, AN ADVERSE INFERENCE IN TERMS OF SECTION 114 OF THE EVIDENCE ACT, 1872 HAD TO BE DRAWN TO THE EFFECT THAT, HAD THOSE DOCUMENTS BEEN PRODUCED, THEY WOULD HAVE GON E AGAINST THE INTEREST OF THE ASSESSEE. H. DEFECTS IN MAINTAINING BO O KS OF ACCOUNT LED TO REJECTION U/S. 145(3) ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 6 NO QUANTITATIVE DAY TO DAY / INWARD / OUTWARD STOCK RE GISTER, IS MAINTAINED WITH ITEM WISE SPECIFICATION, QUALITY AND THEIR VALUES, OR NOT FURN ISHED IN THE MANNER IN WHICH CALLED FOR. BOGUS BILL PROVIDER EITHER NOT PRODUCED, OR NOT FOUND EXISTENT AT THE ADDRESS PROVIDED BY THE ASSESSEE OR THEY ADMITTED TO THE FACT OF ISSUANCE OF BOGUS BILLS AGAINST CHARGING SOME NOMINAL COMMISSION, WITHOUT AC TUALLY SUPPLYING ANY GOODS. PAYMENTS MADE BY A/C PAYEE CHEQUES - THE HAWALA PARTIES ACCEPT THAT AFTER DEDUCTING THEIR NOMINAL COMMISSION, THE BALANCE AMOUNT WAS REFUNDED BY CASH. NAME, ADDRESS & PAN OF PARTIES GIVEN - ASSESSEE CLAIMED IT AS SUFFICI ENT COMPLIANCE & DISCHARGE OF ONUS OF PROVING THE EXPENDITURE, IS NOT ACCEPTABLE AS THESE PARTIES WERE NOT FOUND ON GIVEN ADDRESSES / NOT TRACEABLE, HENCE PURCHASES NOT PROVED. IN THE ABSENCE OF THE REQUIRED DETAILS, THE AO COULD NOT VERIFY THE GENUINENESS OF PURCHASES. ASSESSEE WAS ASKED TO PRODUCE THE SO - CALLED HAWALA PARTIES FROM WHOM BILLS WERE OBTAINED HOWEVER FAILED TO DO SO - SUFFICIENT OPPORTUNITIES WERE GIVEN DURING ASSESSMENT PROCEEDINGS AS WELL AS DURING APPEAL. NOTICES ISSUED U/S. 133(6) - NONE APPEARED OR COULD NOT BE SERVED BECAUSE OF D EFECTIVE ADDRESS. THE ASSESSEE COULD NOT FURNISH CURRENT MAILING ADDRESSES NOR PRODUCE ANY PARTY FOR EXAMINATION. I. ESTIMATION OF INCOME - BEST JUDGEMENT ASSESSMENT - IT IS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF H M ESUFALI H M ABDULLA 90 ITR 271 (SC) THAT IF THE ESTIMATION MADE BY THE ASSESSING AUTHORITY IS A BONAFIDE ESTIMATE AND BASED ON A RATIONABLE BASIS, THE FACT THAT THERE IS NO GOOD PROOF IN SUPPORT OF THAT ESTIMATE IS IMMATERIAL. APE X COURT HAS FURTHER HELD IN THE CASE OF M/S. KANCHWALA GEMS PVT LTD. VS JCIT 288 ITR 10 (SC) THAT IT IS WELL SETTLED THAT IN A ' BEST JUDGMENT ASSESSMENT, THERE IS ALWAYS A CERTAIN AMOUNT OF 'GUESS WORK'. THERE ARE NUMBER OF DECISIONS BY THE VARIOUS COURTS , WHERE 25% TO 100% DISALLOWANCE OF BOGUS PURCHASES, HAVE BEEN UPHELD. SOME OF THEM ARE LISTED, HERE AS UNDER: 100% DISALLOWANCE OF BOGUS / UNVERIFIABLE PURCHASES WAS UPHELDIN FOLLOWING CA_SES_L (I) CIT VS LA MEDICA (2001) 250 ITR 575 (DEL) (II) SRI GANESH RICE MILLS VS CIT (2007) 294 ITR 316 (ALL) (III) KHANDELWAL TRADING CO, VS ACIT (1996) 55 TTJ (JP) 261 (IV) SWETAMBAR STEELS LTD. VS. 1TO 707 / 1075 / 1262 / 1263 / JD (2002) ITAT (AHD) IN THE CASE OF SWETAMBAR STEELS LTD., THE HON 'BLE ITAT HAS CONFIRMED THE DISALLOWANCE OF THE BOGUS PURCHASE IN ENTIRETY STATING THAT THE PURCHASE SHOWN FROM THE RESPECTIVE PARTIES WERE FOUND IN - GEMIINE. IT IS NOT A MATTER LO BE LOOKED INTO WHETHER THE ASSESSEE HAS MADE PURCHASES FROM DIFFERENT PAR TIES OTHER THAN THE ALLEGED ONES. IT IS ALSO WORTH TO MENTION THAT THE APPEAL AGAINST THE DECISION OF HON'BLE ITAT HAS NOT BEEN ADMITTED BY THE HON'BLE GNJARAT HIGH COURT AND {HE ASSESSEE HAS ALSO LOST BEFORE THE HON'BLE SUPREME COURT. SO, THE DECISION OVER THE ISSUE BECAME FINAL AND THE SAME IS THEREFORE, 7.3 THERE ARE JUDICIAL DECISIONS WHERE THE WHOLE AMOUNT OF BOGUS PURCHASES WAS DISALLOWED AND THE ORDER WAS CONFIRMED BY HIGH COURTS. IT HAS BEEN HELD THAT AFTER INVOCATION OF PROVISIONS OF S ECTION 145(3), THE ASSESSING OFFICER ACQ U IRES THE MANDATE EVEN TO ADD DIE WHOLE AMOUNT OF PURCHASES FOUND AS BOGUS TO THE TOTAL INCOME OF THE ASSESSEE. ONE SUCH CASE IS SRI GANESH RICE MILLS VS. CIT 294 ITR 316 (ALL) WHERE THE ENTIRE AMOUNT OF BOGUS PURCHA SES, FROM 5 PARTIES, WAS DISALLOWED AND WAS UPHELD. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL AS CONFIRMED BY HIGH COURT OF ALLAHABAD IS REPRODUCED, HERE AS UNDER; ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 7 '..,... ONCE IT IS FOUND THAT THE PURCHASES WERE BOGUS, ADDITION HAS TO BE MADE TO THE EXTENT OF THE PURCHASES FOUND TO BE FICTITIOUS. THE CONSIDERATION THAT THE GROSS PROFIT DISCLOSED BY THE ASSESSEE COMPARES FAVOURABLY AS COMPARED TO THE EARLIER YEARS IS WHOLLY IRRELEVANT. TO N EUTRALIZE THE EFFECT OF IN FLATION IN PURCHASES, THE ONLY COURSE OPEN TO THE INCOME - TAX OFFICER IS TO ADD BACK THAT AMOUNT TO THE INCOME IRRESPECTIVE OF THE FACT WHETHER THE RATE OF GROSS PROFIT GOES UP AND WHETHER THE RESULTANT GROSS PROFIT IS HIGHER THAN THE GROSS PROFIT NORMALLY SHOWN IN THE EARLIER - YEARS.' 25% DISALLOWANCE OF BOGUS / UNVERIFIABLE PURCHASES HAD BEEN UPHELD IN FOLLOWING CASES (1) SANJAY OIL CAKE INDUSTRIES VS CIT (2008) 316 ITR 274 (GUJ) - (2) VIJAY PROTEINS LTD VS ACIT 58 ITD 428 (ABAD) (3) M/SNAND KI SHORE MEGHRAJ JEWELLERS, JAIPUR CO. NO. 105/JP/09 ARISING OUT OFLTANO. 433/JP/20G9 BY ITAT JAIPUR (4) M/S. TRIDENT JEWELLERS ITAT JAIPUR ITANO. 552/JP/2013. DISALLOWANCE (A), 25% OUT OF BOGUS PURCHASES, HELD AS A REASONABLE IN THE CASE OF VIJAY PROTEINS L TD., IN VIEW OF THE FACT THAT THE GAVINGS OCCURRED TO THE SUPPLIERS ON ACCOUNT OF SALES TAX, DUTIES AND INCOME - TAX (HAVING MMH OF 30%), BY BUYING THE GOODS FROM GREY MARKET AT LOWER RATES AND BOOKING THE PURCHASES AT NORMAL RATE, THE ASSESSEE GOT THE BENEF IT OF THIS PROPORTION. IN VIEW OF THISJHE DISALLOWANCE FA), 25% IS FULLY JUSTIFIED. FURTHER IN THE CASE OF M/S. TRIDENT JEWELLERS VS. ITO, ITA NO. 552/JP/2013, ON ACCOUNT OF BOGUS PURCHASES, AN ADDITION OF 25% OF SUCH PURCHASES WAS CONFIRMED BY THE HON'BL E ITAT, JAIPUR BENCH. 7.4 AS REGARDS, THE CASE LAWS CITED BY THE LD. AR, IT IS NOTICED THAT THE FACTS OF THE EACH CASE ARE NOT IDENTICAL AND ALSO NOT SIMILAR TO THE FACTS OF THE CASE UNDER APPEAL. THE DECISIONS IN THESE CASES, ARE BASED ON THE FACTS OF EAC H CASE, HENCE, CANNOT BE APPLIED TO THE FACTS OF THE CASE UNDER APPEAL. THE RATIO OF DECISIONS IN THE CASES CIT VS. M/S NANGALIA FABRICS, V /S SHRI RAJEEV G. KALATHIL IN INCOME TAX APPELLATE TRIBUNAL, MUMBA1 D BENCH ITA NO.6727/MUM/20L2, ACIT VS PVAMILA PRA VEEN SHAH ITAT, MUMBAI ITO VS APPELLANT, AS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS, THE LD. AR, TIME AND AGAIN, WAS ASKED TO EXPLAIN / JUSTIFY THE GENUINENESS OF PURCHASES MADE FROM HAWALA PARTIES, BY FILING THEIR CURR ENT CONFIRMATION, CURRENT MAILING ADDRESSES, THEIR BANK STATEMENTS AND PRODUCE HAWALA PARTIES FOR EXAMINATION ETC., BUT FAILED TO DO SO. IN THE ABSENCE OF THESE DETAILS THE DEPARTMENT COULD NOT EXAMINE THE CORRECTNESS, REASONABLENESS AND GENUINENESS OF THE SE PURCHASES. 7.5 AS REGARDS THE CLAIM OF THE APPELLANT, THAT THE PAYMENTS HAD BEEN MADE THROUGH 'BANKING CHANNELS AND DEPARTMENT HAD NO EVIDENCE TO PROVE THAT THE BENEFICIARIES HAVE V RECEIVED BACK CASH AFTER DEDUCTING SOME COMMISSION, IS ALSO NOT CORRECT, AS THE ABOVE HAWALA PARTIES, IN THEIR AFFIDAVITS, HAD DULY ADMITTED THESE FACTS. SECONDLY, THE APPELLANT EVEN DURING THE COURSE OF APPELLATE PROCEEDINGS, WAS ALSO ALLOWED NUMBER OF OPPORTUNITIES TO PROVE THE GENUINENESS OF THE ABOVE PURCHASES, BY FURNISHING CURRENT MAILING ADDRESS, CONFIRMATIONS OF LEDGER A/C, BANK STATEMENTS OF HAWALA PARTIES ETC., WHICH THE LD. AR HAS SQUARELY FAILED TO DO SO, HENCE, THE FACTS OF THE ABOVE CASES ARE NOT EXACTLY SAME TO THE FACTS OF THE CASE UNDER APPEAL. 7.6 SIN CE THE HAWALA PARTIES HAVE RUN AWAY FROM THEIR ORIGINAL ADDRESSES AND THE APPELLANT IS NOT IN A POSITION TO FURNISH THE CURRENT VERIFIABLE ADDRESSES, THEREFORE, THE DEPARTMENT IS ALSO NOT IN A POSITION TO ENQUIRE THE GENUINENESS OF THESE PURCHASES, MAINLY DUE TO FAILURE ON THE PART OF THE APPELLANT. ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 8 7 . 7 AS REGARDS OTHER ASPECTS SUCH AS PAYMENT THROUGH BANKING CHANNELS, JUSTIFICATION FOR PURCHASES MADE FROM HAWALA PARTIES AS GENUINE, SALES MADE AGAINST SUCH PURCHASES, ETC., 1 WOULD LIKE TO PLACE THE RE LIANCE ON FINDING OF THE HON'BLE SUPREME COURT, IN THE CASE OF LACHMINARAYAN MADAN LAL V. CIT (1972) 86 1TR 439 (SC), WHEREIN IT IS HELD THAT EVEN IF THERE IS AN AGREEMENT, BETWEEN THE ASSESSES AND ITS AGENTS FOR PAYMENTS OF CERTAIN AMOUNTS AS COMMISSION, ASSUMING THERE WAS SUCH PAYMENT, THAT DOES NOT BIND THE INCOME - TAX. OFFICER TO HOLD THAT THE PAYMENT WAS MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSES OF THE ASSESSES 1 S BUSINESS. IN THIS CASE, THE SUPREME COURT OBSERVED AS UNDER > 'ALTHOUGH T HERE MIGHT BE SUCH AN AGREEMEN T IN EXISTENCE AND SHE PAYMENTS MIGHT HAVE BEEN MADE, IT IS STILL OPEN TO THE INCOME - TAX OFFICER TO CONSIDER THE RELEVANT FACTORS AND DETERMINE FOR HIMSELF WHETHER THE COMMISSION SAID TO HAVE BEEN PAID IS PROPERLY DEDUCTABLE. IN THIS CASE A BSOLUTELY NO MATERIAL ON RECORD HAS BEEN BROUGHT BY THE ASSESSEE TO SUGGEST THAT THE COMMISSION AGENTS HAD PROCURED ANY ORDERS FOR THE ASSESSEE. THE PRODUCTION OF BILLS OR PAYMENTS HAVING BEEN MADE BY ACCOUNT - PAYEE CHEQUES CANNOT BY ITSELF SHOW THAT THE CO MMISSION AGENTS HAD PROCURED ANY ORDER FOR THE ASSESSEE. NO CORRESPONDENCE ............ ' 7.8 IN THE ABOVE CASE., THE HON'BLE SUPREME COURT HAS MADE IT VEIY CLEAR THAT BY CREATING DOCUMENTS AND MAKING PAYMENT THROUGH BANKING CHANNEL TO GIVE COLOUR, DOES NOT SACROSANCT/ ESTABLISHES THE GENUINENESS OF THE TRANSACTION. FROM THE ABOVE DISCUSSION, IT IS SEEN THAT THE VARIOUS COURTS HAVE UPHELD THE DISALLOWANCES OF BOGUS PURCHASES, RANGING FROM 12.5% TO 100%, BASED ON THE FACTS OF EACH CASE. IN VIEW OF TH E FOREGOING DISCUSSION, THE PERCENTAGE OF DISALLOWANCE OF BOGUS PURCHASES, HAS TO BE BASED ON THE FACTS OF EACH CASE, HENCE THE SAME CANNOT BE GENERALIZED IN EVERY CASE. 7.9 FROM THE FACTS OF THE CASE IT IS NOTICED THAT, THE HAWALA PURCHASES OF RS 5,16,33 ,327/ - & RS.6,14,96,149/ - , REPRESENTS NEARLY 57.19% & 60.71% OF TOTAL PURCHASES, I.E. RS. 9,02,71,719 / - AND RS. 10,12,86,5167 - , FOR A.Y 09 - 10 AND 11 - 12, RESPECTIVELY. IT IS FURTHER NOTICED THAT EXCEPT FOR THE A YRS 2009 - 10, 2010 - 11 AND 2011 - 12, THE APPELLA NT HAD NEVER AFFECTED SUCH PURCHASES FROM HAWALA PARTIES, THEREFORE, THE CONTENTION OF THE APPELLANT THAT HE HAD ACTUALLY PURCHASED THESE GOODS FROM HAWALA PARTIES, IS NOT TENABLE, AS THESE HAWALA PARTIES HAD ADMITTED THE FACT THAT THEY HAVE MERELY ISSUED THE BILLS WITHOUT DELIVERY OF ANY GOODS TO ANY PARTY. THE LD. AR ALSO FAILED TO FURNISH THE VERIFIABLE ADDRESSES OF THESE HAWALA PARTIES AND ALSO COULD NOT PRODUCE THE PARTIES FOR EXAMINATION IN PERSON. BEFORE THE S T DEPARTMENT, THESE HAWALA DEALERS, INTE R - ALIA, HAVE STATED AS UNDER: 1. ....... DO NOT HAVE ANY GO - DOWNS 7 STORAGE OF GOODS. 2. ....... HAVE NOT ACTUALLY PURCHASED/SOLD ANY GOODS. ONLY PAPER BILLS ISSUED THAT TOO WITHOUT PHYSICALLY DELIVERY OF GOODS. 3. ...... DO NOT MAINTAIN ANY BOOKS OF ACCOUNTS HI RESPECT OF ABOVE CONCERN. 4. ... ..HAVE GIVEN BLANK SIGNED CHEQUE BOOK, BLANK BILLS AND BLANK CHALLAN ETC. 5 . ...... HAVE SIGNED ON BLANK ACCOUNT OPENING FORM OF THE BANK, AS PER DIRECTION.' ........ FOR WHICH I AM BEING PAID VERY NOMINA L AMOUNT/ CHARGED NOMINAL COMMISSION AND SO ON........ 7.10 IT IS IMPORTANT TO MENTION THAT ON ACCOUNT OF SURVEY / ENQUIRY ACTION OF THE S T DEPARTMENT, GENERALLY GENUINE PARTIES WILL NEVER RUN AWAY FROM THEIR LOCATIONS, BY LEAVING ASIDE THEIR BUSINESS SET - UP AND OTHER TRADING ITEMS/STOCKS. IT IS PERTINENT TO MENTION HERE THAT OF ABOVE ACTION OF THE S T DEPARTMENT, ALL SUCH BOGUS PARTIES HAVE RUN AWAY FROM THEIR SITES. IT IS SURPRISE TO NOTE THAT OUT OF THOUSANDS OF SUCH HAWALA PARTIES, NOT EVEN A SINGLE HA WALA PARTY, COULD BE LOCATED, AFTER ACTION OF THE S T ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 9 DEPARTMENT AND IN OTHER CASES ALSO NEITHER OF THE APPELLANT COULD FURNISH THE VERIFIABLE ADDRESSES OF THESE HAWALA PARTIES. NOT EVEN SINGLY ENTITY WAS FOUND HAVING ANY TRADING STOCK AT THEIR SITES, DURI NG THE COURSE OF CLOSURE OF THE BUSINESS. THIS CLEARLY ESTABLISH THE FACT THAT IN THE MARKET, THE SCAM OF HAWALA BILLING WAS GOING ON, IN A SYSTEMATIC MANNER, TO GENERATE THE CASH, FOR THE PURPOSE, WHICH IS WELL KNOWN IN THE TRADE, IN THE FORM OF PARALLEL ECONOMY/ FOR ILLEGAL ACTIVITIES. THIS SCAM WAS GOING ON IN THE MARKET, IN THE NAME OF PERSONS / EMPLOYEES (WHO ARE NOT MEN OF MEANS), WHO DO NOT HAVE THEIR PERMANENT ESTABLISHMENT IN THE CITY AND WERE OPERATING FROM VENTED PREMISES, THEREFORE, RUN AWAY FRO M THE SCENE, HENCE NOT TRACEABLE. IN VIEW OF THESE FACTS, IN MY CONSIDERED OPINION, THIS TYPE OF SCAM SHOULD NOT BE LEGALIZED, BY RESTRICTING THE DISALLOWANCE OF BOGUS PURCHASES TO A CERTAIN PERCENTAGE, UNLESS AND UNTIL IT IS PROVED THAT THE APPELLANT HAD AFFECTED, THE CERTAIN PURCHASES FROM GREY MARKETS DUE TO COMPELLING CIRCUMSTANCES, AS THE SAME WERE NOT AVAILABLE IN THE REGULAR MARKET, AS HAS BEEN HELD IN THE CASE OF M/A. KANCHWALA GEMS PVT. LTD. VS. JCIT 288 ITR10 (SC). 7.11 IN VIEW OF T HESE FACTS, THE APPELLANT WAS REQUESTED TO FURNISH THE COMPARATIVE DETAILS OF GP/NP AND GP/NP RATES FOR HAWALA YEARS, PRECEDING TWO YEARS AND SUBSEQUENT TWO YEARS AS WELL AS COMPARATIVE TRADING RESULTS FOR HAWALA PURCHASES AND REGULAR PURCHASES, IN COMPLIA NCE, THE APPELLANT HAS FURNISHED THE SAME AS UNDER. A.YR. SALES(RS) GP GP RATE NP NP RATE 2007 - 08 2,64,46,803 30,67,598 11.60% 3,15,526 1.19 % 2008 - 09 6,60,81,333 43,06,340 6.52% 8,06,398 1.22% 2009 - 10 (AS 10,44,98, 236 5,84,55,7 48 55.94% 5,31,41,804 50.85% PER AO & AS PER ASSESSEE 10,44,98,236 68,22,421 6.53% 15,08,477 1.44% 2010 - 11 6,32,96,578 1,46,73,7 64 23.18% 92,52,391 14.62% (AS PER AO & AS PER ASSESSEE) 6,32 ,96,578 63,07,781 9.97% 8 S 86,40S 1.40% 2011 - 12 ) 10,42,20,253 6,89,32,1 45 66.14% 6,29,70,844 60.42% (AS PER AO & AS PER ASSESSEE 10,42,20,253 ' 74,35,996 7.13% 14,74,695 1.41% 2012 - 13 8,19,82,189 69,51,660 8,48% 12,21 ,305 1.49% 2013 - 14 11,94,60,466 ' 65,88,076 5.51% 1136,827 0.95% ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 10 A.YR. SALES(RS) PURCHASES GROSS PROFIT GP RATE 2009 - 10 (TRADING ACCOUNT OF SUSPICIOUS PURCHASES) 5,42,65,552 5,16,33,327 26,32,224 4.85 2009 - 10 ( TRADING ACCOUNT OF REGULAR PURCHASES) 5.02,32,684 3,86,38,392 39,46,000 7.86 2011 - 12 (TRADING ACCOUNT OF SUSPICIOUS PURCHASES) 6,32,80,503 6,14,96,144 20,05,412 3.17 2011 - 12 (TRADING ACCOUNT OF REGULAR PURCHASES) 1 4,09,39,750 3,97,90, 373 51,55,955 12.59 7.12 FROM THE ABOVE DETAILS, IT IS NOTICED THAT THE BOOKING OF HAWALA PURCHASES HAS RESULTED INTO SUPPRESSION OF GROSS PROFIT, WHICH IS EVIDENT FROM THE FACT THAT IN HAWALA YEARS, THE APPELLANT HAD DECLARED DIE GP @ 6.53% AND 7.1 3%, RESPECTIVELY, AS AGAINST 11.60% DECLARED IN A.Y. 2007 - 08. IN COMPLIANCE, THE LD. AR COULD NOT OFFER ANY VALID EXPLANATION. THE PERUSAL OF SECOND CHART REVEALS THAT IN - SPITE OF TRADING THE SIMILAR ITEMS IN SUSPICIOUS TRADING ACCOUNT AND REGULAR TRADING ACCOUNT, THE APPELLANT HAD DECLARED LESSER GP MARGIN IN SUSPICIOUS TRADING ACCOUNTS AS COMPARED TO THE REGULAR TRADING ACCOUNTS.. IN COMPLIANCE, IN SUSPICIOUS ACCOUNT THE APPELLANT HAD DECLARED GP @ 4.85% & 3,17%, AS AGAINST 7.86% & 12.59%, IN THE REGULAR TRADING ACCOUNT, IN AY 2009 - 10 & AY 2011 - 12 RESPECTIVELY, IN - SPITE OF HAVING ALMOST COMMON TRADING ITEMS. THE LD. AR COULD NOT OFFER ANY VALID EXPLANATION FOR TRADING THE GOODS IN HAWALA ACCOUNT AT LESSER MARGIN. THIS CLEARLY ESTABLISHED THE FACT THAT THE APPELLANT HAD SUPPRESSED ITS PROFIT BY INFLATING HIS HAWALA PURCHASES, WHICH ARE NOT OPEN FOR VERIFICATION. HOWEVER, THIS IS NOT A CASE WHERE THE ENTIRE AMOUNT HAS BEEN SIPHONED OFF, BY BOOKING HAWALA PURCHASES, AS THE APPELLANT HAD DULY DECLARED THE C ORRESPONDING SALES IN RESPECT OF SUCH HAWALA PURCHASES. THEREFORE IN THIS CASE, AT THE MOST THE QUESTION OF PROFIT ELEMENT CAN ONLY BE A DISPUTE. 7.13 FROM THE ABOVE CHART IT IS SEEN THAT THE APPELLANT IS CAPABLE OF HARVESTING GP @ 11.60% IN AY 2007 - 08 AS ABOVE RATE, FROM THE SAME SET OF BUSINESS AND WITH THE SAME MANAGEMENT. IF THE GP FOR AY 2007 - 08 IS ADOPTED, AFTER REJECTING THE ACCOUNTS U/S. 145(3) OF THE ACT, THEN THE RESULTANT SUPPRESSED GP WILL BE WORKED OUT AT RS. 52 , 98, 060/ - (11.60% - 6.53% * 10,44 ,98,236/100 AND RS.46,58,645/ - (11.60% - 7.13%)* 10,42,20,253/100). LIKEWISE, IN THE SUSPICIOUS TRADING ACCOUNT, THE APPELLANT HAD SHOWN LESSER GP BY RS. 57,92 ; 937/ - [(12.59% - 3.17%)*6,14,96,144/100] IN AY 2011 - 12, AS AGAINST GP DECLARED IN THE REGULAR TRAD ING ACCOUNT. THIS FURTHER ESTABLISHED THE FACT THAT APPELLANT HAD MANIPULATED ITS TAXABLE PROFIT BY INFLATING HIS HAWALA PURCHASES, WHICH ARE NOT OPEN FOR VERIFICATION, HI VIEW OF THESE FACTS THE LD. A.R. DURING THE COURSE OF APPELLATE PROCEEDINGS, HAS REQ UESTED AS UNDER. ' WITHOUT PREJUDICE TO THE ABOVE , WE WOULD LIKE TO RELY ON THE JUDGEMENT RESULTED IN 'GUJARAT HON'BLE COURT - CIT VS. SIMIT P. SHCTH (SUPRA) (2013) 38 TAXNUMN.COM 385 (GUJ.) WHEREIN THE HIGH COURT SUSTAINED THE ADDITIONS WHIC H WERE SUSTAINE D AT 12.5% BY TH E TRIBUNAL AS PROBABLE PROFITS. THEREFORE, WITHOUT PREJUDICE TO THE SAME WE REQUEST YOUR HONOR TO SUSTAIN THE ADDITIONS (O)J2.5% AND OBLIGE.' ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 11 7.14 KEEPING IN VIEW, THE ABOVE PRAYER OF THE APPELLANT, THE FACTS OF THE ASSESSEE WERE COMPARE D WITH THE CASE CITED ABOVE. AS PER DETAILS SUBMITTED BY THE APPELLANT, IT IS NOTICED THAT THE APPELLANT HAD CARRIED OUT THE TRADING IN ALL KINDS OF PAPERS, ON WHOLE - SALE BASIS. IT IS FURTHER SEEN THAT THE APPELLANT HAD ALSO CREDITED ITS SALES ACCOUNTS AGA INST SALE OF HAWALA PURCHASES. THE DISALLOWANCE OF HAWALA PURCHASES HAS RESULTED INTO INCREASE OF GP RATE AT 55.94% & 66.14%, IN AY 2009 - 10 & AY 2011 - 12, RESPECTIVELY, FROM TRADING BUSINESS, WHICH IS NOT POSSIBLE. FROM THESE FACTS IT IS PROVED THAT THE APP ELLANT MIGHT HAVE AFFECTED THE PURCHASES FROM THE GREY MARKETS (WHICH ARE NOT OPEN FOR VERIFICATION) AND PROCURED THE BILL FROM ABOVE HAWALA PARTIES. THERE IS A POSSIBILITY THAT THE APPELLANT MIGHT HAVE PROCURED THE INFLATED BILLS WHICH IS PROVED FROM THE FACTS THAT THE GP MARGIN IS QUITE AT LOWER SIDE, IN RESPECT OF GOODS PROCURED FROM THE ABOVE SUSPICIOUS PARTIES, AS AGAINST GP SHOWN IN RESPECT OF GOODS PROCURED FROM THE REGULAR PARTIES. IN VIEW OF THESE FACTS, THE RULINGS OF HON'BLE GUJ. HIGH COURT, IN T HE CASE OF SIMIT P SETH (2013) 38 TAXMANN.COM 385 (GUJ), ARE SQUARELY APPLICABLE IN THE APPELLANTS CASE. THE RELEVANT PART OF THE JUDGMENT , IS REPRODUCED HERE AS UNDER: ' THE AO IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSE SSEE. LD. CIT (A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM THE NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFITS OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITIONS 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 PU RCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON T HE DECISION IN THE CASE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 1TR 498 (GUJ.) AND VIJAY PROTEINS 58 JTD 428.' 7.15 THEREFORE, RELYING ON THE RATIO LED DOWN IN THE ABOVE CASE, THE DISALLOWANCE @12.5% OF THE HAWALA PURCHASES, IN THIS CASE, WILL BE A LOGICAL COURSE. ACCORDINGLY, THE DISALLOWANCE @12.5% OF HAWALA PURCHASES IS WORKED OUT AT RS 64,54,166/ - (12.5% OF RS. 5,16,33,327/ - ) FOR A YR 2009 - 10 & RS. 76,87,019/ - (12.5% OF 6,14,96,149/ - ) FOR A YR 2011 - 12. THE DISALLOWANCE OF 12.5% OF HAWALA PURCHASES I.E. RS 64,54,166/ - & RS. 76,87,019/ - , IS ALMOST AT PAR WITH THE SUPPRES SED PROFITS I.E. RS. 51,34,005 / - & 46,58,645 / - ,IN AY 2009 - 10 & AY 2011 - 12, RESPECTIVELY, AS ABOVE, WHICH FARTHER PROVES THE FACT THAT THE APPELLANT HAS SUPPRESSED HIS TAXABLE PROFITS BY PROCURING THE INFLATED BILLS FROM THE ABOVE SUSPICIOUS PARTIES. KEEPIN G IN VIEW THE ABOVE FACTS, IN RAY CONSIDERED OPINION, THE DISALLOWANCE @12.5% OF THE HAWALA PURCHASES, AS ABOVE, WILL BE REASONABLE, AS AGAINST 100% MADE BY THE AO. ACCORDINGLY, THE DISALLOWANCE TO THE EXTENT OF RS. 64,54,166/ - & RS. 76,87,019/ - ; IN THESE YEARS, IS HEREBY SUSTAINED AND BALANCE AMOUNT IS DELETED. ALL THE GROUNDS OF APPEAL ARE DISPOSED OF ACCORDINGLY. 7 . AGAINST THE ABOVE ORDER OF CIT(A) , BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT CIT(A) HAS DEALT ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 12 WITH THE ISSUE THREADBARE AND AFTER APPLYING VARIOUS PROPOSITION OF LAW LAID DOWN BY HIGH COURTS AND CO - ORDINATE BENCH OF ITAT FOUND THAT DISALLOWANCE OF 12.5% OF HAWALA PURCHASES IS AT PAR WITH THE SUPPRESSED PROFIT. THE CIT(A) ALSO FOUND THAT IT IS MERELY A CASE OF SUPPRESSION OF PROFIT, THE ASSESSEE HAS MADE PURCHASES AGAINST WHICH CORRESPONDING SALES HAVE BEEN ACCEPTED BY THE AO, AND ACCORDINGLY , HE CONFIRMED TH E DISALLOWANCE TO THE EXTENT OF 12.5% OF THE PURCHASES. THE FINDING S RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD, THEREFORE, DO NOT REQUIRE ANY INTERFERENCE. FURTHER, NEITHER AR NOR DR COULD BRING ON RECORD ANY POSITIVE MATERIAL SO AS TO PERSUADE US TO DEVIATE FROM THE FINDINGS RECORDED BY THE CIT(A). 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE DISMISSED. 9. FACTS AND CIRCUMSTANCES IN BOTH THE YEA RS ARE PARAMETRIA , THEREFORE, FOLLOWING REASONING GIVEN HEREINABOVE, THE APPEAL OF ASSESSEE AND REVENUE FOR A.Y. 2011 - 12 ARE ALSO DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 29 / 08 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 29 / 08 /201 7 KARUNA SR. PS ITA NO. 3354/MUM/2016, 3355/MUM/2016 ITA NO. 2303/MUM/2016 & 2302/MUM/2016 SHRI HASMUKH JAGSHI 13 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//