ITO 5 (2)(4), MUMBAI V. M/s PRANAV BRIGHT BARS PVT. LTD., MUMBAI

ITA 3406/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5347 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 21-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Keywords: Bogus purchase; Accommodation entries; Tax effect; Set aside
• Section: 133(6); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER ITA NO. 3406 /MUM/201 9 (A.Y: 2009 - 10) INCOME TAX OFFICER WARD 5 ( 2)( 4 ) ROOM NO. 566, AAYAKAR BHAVAN M.K. ROAD , MUMBAI 400 020 V. M/S. PRANAV BRIGHT BARS PVT. LTD., 90, ARSESHIR DADAY STREET NEAR DADACHANJI BUILDING C.P. TANK, MUMBAI - 400004 PAN: AADCP1678H (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : MS. ARJU GARODIA DATE OF HEARING : 21.09.2020 DATE OF PRONOUNCEMENT : 29 .09 . 2020 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE L EARNED COMMISS IONER OF INCOME TAX (APPEALS) 10 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 15.02.2019 FOR THE ASSESSMENT YEAR 2009 - 10 . 2. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE ADDITION ON ACCOUNT OF BOGUS PURC HASES OF RS. 6,99, 410/ - TO RS. 87 426/ - BEING 12.5% OF SUCH 2 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., PURCHASES AS AGAINST 25% WITHOUT APPRECIATING THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE GENUINENESS OF THE TRANSACTION WITH IMPUGNED PARTIES WHICH THE ASSESSEE FAILED AND THE ASSESSEE EVEN FAILED TO PRODUCE THESE PARTIES B EFORE THE ASSESSING OFFICER WHEN CALLED FOR AS THE NOTICE U/S 133(6) OF THE IT ACT 1961 ISSUED TO SUCH PARTIES WERE RECEIVED UN - SERVED AND THEREFORE CIT(A) ERRED IN RESTRICTING THE ADDITION TO 12.5% OF SUCH BOGUS PURCHASES INSTEAD OF CONFIRMING 25% ADDITIO N OF BOGUS PURCHASES? ' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN CONCLUDING THAT THE ASSESSEE SUBMITTED ALL THE E VIDENCES WITHOUT APPRECIATING THAT EVIDENCES SO SUBMITTED REMAINED UNVERIFIABLE AS RESPECTIVE PA RTIES COULD NOT CONFIRM THE CORRECTNESS AS WELL AS GENUINENESS OF THESE DOCUMENTS/EVIDENCES? 3. T HOUGH THE TAX EFFECT IS BELOW THE PRESCRIBED LIMIT, FURTHER APPEAL TO ITAT IS AUTHORIZED AS THE CASE FALLS IN EXCEPTION AS PER BOARD CIRCULAR NO. 3/2018 WITH REGARD TO ADDITION/DISALLOWANCE MADE ON ACCOUNT OF INFORMATION RECEIVED FROM EXTERNAL AGENCIES. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF IRON RODS, FILED ITS RETURN OF INCOME FOR THE A.Y. 2009 - 10 ON 23.09.2009 DECLARING INCOME OF . 1,81,758 / - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEALERS. THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT BASED ON THE INFORMATION RECEIVED FROM DGIT(INV.), MUMBAI, THAT THE ASSESSEE HAS 3 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., AVAILED ACCOMMODATION ENTRIES FROM M/S. SHRITI ENTERPRISES WHICH IS SAID TO BE PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOODS. IN THE RE - ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM M/S. SHRITI ENTERPRISES . IN REPLY A SSESSEE VIDE LETTER DATED 24.12.2014 FURNISHED COPIES OF B ILLS, DETAILS OF CHEQUES ISSUED TO THE PARTY AND ITS CORRESPONDING SALES , THE QUANTITATIVE DETAILS OF STATISTICAL PURPOSE AND SALES AND SUBMITTED THAT THE PURCHASES MADE FROM THE PARTY ARE GENUINE . HOWEVER, ASSESSEE COULD NOT PRODUCE THE PARTY BEFORE THE A SSESSING OFFICER. 4. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES . THEREFORE, ASSESSING OFFICER TREATED PURCHASES OF .6,99,410/ - MADE FROM M/S. SHRITI E NTERPRISES AS NON - GENUINE . HOWEVER, T HE ASSESSING OFFICER ESTIMATED THE PROFIT ELEMENT FROM SUCH PURCHASES AT 25% AND DISALLOWED . 1,74,853/ - WHILE COMPUTING THE INCOM E. ON APPEAL THE LD.CIT(A) CONSIDERING THE EVIDENCES AND VARIOUS SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLOWANCE TO THE EXTENT 12.5 % OF THE NON - GENUINE PURCHASES. 4 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., 5. INSPITE OF NOTICE NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT BY THE ASSESSEE. THEREFORE, WE PROCEED TO DISPOSE OFF THIS APPEAL ON HEARING THE LD. DR ON MERITS . 6. HEARD LD. DR , AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), I FIND THAT THE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS IN THE ASSESSMENT ORDER AND FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V . SIMIT P. SHETH [356 ITR 451] RESTRICTED THE DISALLOWANCE TO 12.5 % OF THE NON - GENUINE PURCHASES . WHILE HOLDING SO THE LD.CIT(A) OBSERVED AS UNDER: - 7.3.15 NONETHELESS, FROM THE 'FACTS RECORDED ABOVE IN THIS CASE, IT HAS EMERGED THAT THE MATERIAL IN QUESTION WAS REALLY RECEIVED BECAUSE WITHOUT RECEIVING SUCH MATERIAL THE CORRESPONDING SALES WOULD NOT HAVE BEEN POSSIBLE. HOWEVER, THE MATERIAL WAS NOT RECEIVED FROM THE PART IES FROM WHOM IT IS 'SHOWN TO HAVE BEEN PURCHASED AS THERE IS NO INDEPENDENT THIRD PARTY EVIDENCE ON RECORD WHICH CAN SUPPORT THE TRANSACTION. THUS, AN INFERENCE CAN BE DRAWN THAT SUCH MATERIAL WERE PURCHASED FROM DIFFERENT SOURCES WHICH WERE EXCLUSIVELY W ITHIN THE KNOWLEDGE OF APPELLANT AND NONE ELSE. IT IS WELL KNOWN THAT IF PURCHASES ARE MADE FROM OPEN MARKET WITHOUT INSISTING FROM THE GENUINE BILLS, THE SUPPLIERS MAY BE WILLING TO SELL THOSE PRODUCTS AT A MUCH LOWER RATE AS COMPARED TO THE RATE AT WHICH THEY MAY CHARGE IN CASE THE DEALER HAS TO GIVE A GENUINE SALE INVOICE IN RESPECT OF THAT SALE AND SUPPLY THE GOODS. THERE MAY BE VARIOUS FACTORS DUE TO WHICH THERE IS BOUND TO BE A SUBSTANTIAL DIFFERENCE BETWEEN THE PURCHASE PRICE OF UNACCOUNTED MATERIAL AND RATE OF PURCHASE OF ACCOUNTED FOR GOODS. THERE MAY BE A SAVING ON ACCOUNT OF SALES - TAX AND OTHER TAXES AND DUTIES WHICH MAY BE 5 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., LEVIABLE IN RESPECT OF MANUFACTURE OF SALE OF GOODS IN QUESTION. THE SUPPLIERS OR THE MANUFACTURERS MAKE A SUBSTANTIAL SAVING IN THE INCOME - TAX IN RESPECT OF INCOME FROM SALE OF UNACCOUNTED GOODS PRODUCED AND SOLD BY THEM. THIS MAY ALSO BE ONE OF THE FACTORS DUE TO WHICH THE SELLER MAY BE WILLING TO CHARGE LOWER RATES FOR UNACCOUNTED GOODS AS COMPARED TO ACCOUNTED FOR GOODS. 7.3 .16 APPARENTLY, THE MOTIVE BEHIND OBTAINING BOGUS BILLS IS INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS THE PROFITS AND THE PROFIT FROM SUCH TRANSACTIONS VARIES WITH NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED FOR ESTIMATION OF SUCH PROFI T. THEREFORE, IN LIGHT OF THE ABOVE DECISIONS, TAKING IN TO ACCOUNT THE TOTALITY OF THE FACTS, IT WILL BE REASONABLE TO ESTIMATE THE PROFIT EMBEDDED IN THE ACCOMMODATION ENTRIES OF BOGUS PURCHASES AS UNDISCLOSED PROFIT OF THE APPELLANT. 7.3.17 THE ESTIMAT IONS OF PROFIT EMBEDDED IN ACCOMMODATION ENTRIES OF BOGUS PURCHASES TRANSACTIONS @ 12.5% OUT OF PURCHASE PRICE ACCOUNTED THROUGH BOGUS INVOICES HAVE BEEN UPHELD AS THE FAIR PROFIT RATE OUT OF THE BOGUS PURCHASES BY THE HON'BLE COURTS AND TRIBUNALS. 7.3.18 IN THE CASE OF CIT V. SIMIT P. SHETH (2013) 356 ITR 451 (GUJ)(HC), THE HON'BLE HIGH COURT HAS UPHELD DISALLOWANCE @12.5% OF SUCH PURCHASES. 7.3.19 DURING THE RELEVANT YEAR THE APPELLANT WAS ENGAGED IN MANUFACTURING OF BRIGHT STEELBARS AND WIRES, CARRIED OUT AT FACTORY AT AAAMGOAN. THE APPELLANT HAS ALSO ENGAGED IN TRADING AT ITS MUMBAI HO.. THE APPELLANT HAS MAINTAINED REGISTER RG23(I) FOR ITS MANUFACTURING ACTIVITY AND STOCK REGISTER FOR TRADING AT MUMBAI HO FOR TRADING ACTIVITY. THE APPELLANT HAS ACTED AS A DEALER SO FAR AS THE ALLEGED TRANSACTIONS ARE CONCERNED. UNDER IDENTICAL FACTS, THE HON'BLE ITAT, BOMBAY TRIBUNAL (H) HAS UPHELD DISALLOWANCE @12.5% OF SUCH PURCHASES IN THE DECISION DATE 4 TH APRIL, 2017 IN THE CASE OF RATNAGIRI STAINLESS PVT. LTD. VS. INCOME TAX OFFICER IN ITA NO. 4463/MUM/2016 AS WELL AS IN INCOME TAX OFFICER 5 (3) (1) VS. M/S RBS COPPER PRODUCTS PVT. LTD. IN ITA NOS. 1057 & 1058 DATED 04/07/2017. THEREFORE, IN LIGHT OF THE ABOVE DECISIONS, TAKING IN TO ACCOUNT THE TOTALITY OF THE FACTS, IT WILL BE REASONABLE TO ESTIMATE THE PROFIT EMBEDDED IN THE ACCOMMODATION ENTRIES OF BOGUS PURCHASES @ 12.5 % OF THE PURCHASE AMOUNT. AS IT IS AN ESTIMATE OF THE PROF IT EMBEDDED IN PURCHASE, IT CAN NOT BE SUBJECT TO ANY ADJUSTME NT ON ACCOUNT OF ANY SUBSEQUENT PROFIT ARISING FROM THE SALE OF THE MATERIALS AS HELD BY THE HON'BLE ITAT, MUMBAI BENCH IN THE DECISION IN ITA NO. 6555/MUM/2017 FOR AY 2009 - 10 IN THE CASE OF M/S. MUHTAMARKFIN (P) LIMITED VS. ITO - 5(2)(3), HAS HELD AS UNDER: 6 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., 'WE ARE OF THE CONSIDERED VIEW THAT AS THE PROFIT ELEMENT ACCOUNTED FOR BY THE ASSESSEE IN ITS REGULAR BOOKS OF ACCOUNTS PERTAINS TO THE PROFIT WHICH IT WOULD HAVE MADE FROM SELLING THE GOODS UNDER CONSIDERATION, THEREFORE, THE SAME WOULD HAVE NO BEARING O N THE QUALIFICATION OF THE MONETARY BENEFIT INVOLVED IN MAKING OF PURCHASES BY THE ASSESSEE AT A LOWER PRICE FROM THE OPEN/GREY MARKET, AS IN COMPARISON TO PURCHASES MADE FROM REGISTERED DEALER. 7.3.20 IN VIEW OF THE ABOVE, THE PROFIT EMBEDDED IN THE ACCO MMODATION ENTRIES OF BOGUS PURCHASES AMOUNTING TO .699,410 / - IS ESTIMATED @ 12.5 % ON SUCH PURCHASE S AND AN ADDITION OF RS. 87,426/ - IS SUSTAINED. THE APPELLANT GETS RELIEF OF RS. 87,427 / - . 7.3.21 ACCORDINGLY, ALL THE THE ABOVE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 7. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) AND THE REASONS GIVEN THEREIN, I FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN RESTRICTING THE ADDITION/DISALLOWANCE TO THE EXTENT OF 12.5 % OF THE PURCHASES. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 29 . 09.2020 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. S D / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 29 / 09/2020 GIRIDHAR, SR.PS 7 ITA NO. 3406/MUM/2019 (A.Y: 2009 - 10) M/S. PRANAV BRIGHT BARS PVT. LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM