VIKAS MADANMOHANLAL ARORA, MUMBAI V. ITO 28(3)(4), MUMBAI

ITA 337/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8135 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 24-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO.337/MUM/2019 ( ASSESSMENT YEAR: 2010-11) VIKAS MADANMOHANLAL ARORA, 28-1003, SEAWOODS ESTATE, NRI COMPLEX, NERUL, NAVI MUMBAI-400706. VS. I.T.O. WARD 28(3)(4), 3 RD FLOOR, TOWER NO. 6, VASHI, NAVI MUMBAI- 400703. PAN/GIR NO.AEKPA 7854 C (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI ASHOK MEHTA (AR) REVENUE BY SHRI AKHTAR H ANSARI (DR) DATE OF HEARING 22/01/2020 DATE OF PRONOUNCEMENT 23/01/2020 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 07/12/2018 OF LD. CIT(A)-26, MUMBAI FOR THE A.Y. 20 10-11 IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT), WHEREIN THE LD. IT(A) HAS CONFIRMED THE ADDITION TO THE EXTENT OF 12.5% IN RESPECT OF BOGUS PURCHASES. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF TRADING IN IRON AND STEEL. DURING THE COURSE OF REASSESSMENT P ROCEEDINGS, THE ITA NO. 337/MUM/2019 VIKAS MADANMOHANLAL ARORA VS ITO 2 A.O. MADE ADDITION BY ESTIMATING PROFIT OF 25% ON B OGUS PURCHASES, WHICH WAS RESTRICTED BY THE LD. CIT(A) TO THE EXTEN T OF 12.5%, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 3. IT WAS ARGUED BY THE LD AR OF THE ASSESSEE THAT THE ASSESSEE HAS FILED COMPLETE DETAILS OF CORRELATING EACH AND EVERY PURCHASES AND SALE AND ALSO SHOWING VERY GOOD G.P. OF 8.4%, THERE FORE, ADDITION MADE BY THE A.O. WAS NOT JUSTIFIED. 4. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE A.O. HAS V ERY REASONABLY MADE ADDITION TO THE EXTENT OF 25% IN RESPECT OF BO GUS PURCHASES AND THE SAME SHOULD BE UPHELD. 5. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WITH R ESPECT TO ISSUE REGARDING ADDITION IN RESPECT OF BOGUS PURCHASES, T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. IN ITA NO. 1004 OF 2016 VIDE ITS ORDER D ATED 11/02/2019 HAVE HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES ITA NO. 337/MUM/2019 VIKAS MADANMOHANLAL ARORA VS ITO 3 WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT T HE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THA T SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND TH E TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE AS SESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHAS ES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTU RBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREF ORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTENT OF B RINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N .K. INDUSTRIES LTD.. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SA LES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURIN G FINANCIAL YEAR 1997-98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PUNISHED SINCE SALE PRI CE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6% GROS S PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACC ORDINGLY AS A RESULT OF WHICH PROFIT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66% OF RS.3,70,78,125/WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVEN UE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSW ERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY I N FAVOUR OF THE REVENUE.' ITA NO. 337/MUM/2019 VIKAS MADANMOHANLAL ARORA VS ITO 4 6. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 AFTER FOLLOWING THE ABOVE DECISION OF HONBLE BOMBAY HIGH COURT HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIRMED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISI ON OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SMITH P.SETH (SUP RA). WE HAVE CONSIDERED THE RIVAL CONTENTIONS ITA NO. 4192/MUM/2 018 AND ARE OF THE VIEW THAT HON'BLE BOMBAY HIGH COURT IN THE C ASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPRA) HAS CONSI DERED THIS ISSUE AND RESPECTFULLY FOLLOWING THE SAME, WE DIREC T THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT OF DIFFERENTIAL PERCENTAGE AS DECLARED ON THE BOGUS PURCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO ACCORDINGLY. 7. IT IS CLEAR FROM THE ABOVE DECISIONS THAT IN CAS E OF BOGUS PURCHASES WHERE SALES ARE ACCEPTED, THE ADDITION IS REQUIRED TO BE MADE ONLY TO THE EXTENT OF DIFFERENCE BETWEEN THE G P DECLARED BY THE ASSESSEE ON NORMAL PURCHASES VIS A VIS BOGUS PURCHA SES. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE JURISDICTIONAL H IGH COURT AND THE COORDINATE BENCH OF THE ITAT, MUMBAI, I DIRECT THE A.O. TO RESTRICT THE ADDITION TO THE EXTENT OF LOWER GP DECLARED BY THE ASSESSEE IN RESPECT OF BOGUS PURCHASES AS COMPARED TO GP ON NORMAL PURC HASES. THE ASSESSEE IS ALSO DIRECTED TO GIVE FULL DETAILS TO T HE A.O. WITH REGARD TO GP EARNED ON NORMAL PURCHASES AND ALSO GP EARNED ON ALLEGED BOGUS PURCHASES. I DIRECT ACCORDINGLY. ITA NO. 337/MUM/2019 VIKAS MADANMOHANLAL ARORA VS ITO 5 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART, IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JANUARY, 2020. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 23/01/2020 *RANJAN 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//