NEHAL HASMUKH SHAH, MUMBAI V. ITO 24(2)(1), MUMBAI

ITA 3520/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9013 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR; SAURABH DESH
• Keywords: Bogus purchase; Unexplained expenditure; Accommodation entries
• Section: 69C; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO.3520/MUM/2016 ASSESSMENT YEAR: 2009 - 10 & ITA NO.3521/MUM/2016 ASSESSMENT YEAR: 2010 - 11 & ITA NO.3522/MUM/2016 ASSESSMENT YEAR: 2011 - 12 NEHAL HASMUKH SHAH A - 26, TILLIBAI APT CHS, BACHANI NAGAR MALAD (E) MUMBAI - 400097 VS. ITO - 24 (2)(1) 5 TH FLOOR, C - 10, AAYKAR BHAVAN , BKC, MUMBAI400051 APPELLANT RESPONDENT PAN NO. AMTPS6192A ASSESSEE BY : NONE REVENUE BY : MR. JAYANT KUMAR & MR. SAURABH DESHPANDE , DR DATE OF HEARING : 02 /0 8 /2017 DATE OF PRONOUNCEMENT: 11/10/2017 ORDER PER N.K. PRADHAN, A.M . THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 41 , MUMBAI AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE NEHAL H. SHAH ITA NO. 3520, 3521, 3522/MUM/2016 2 ARE PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN SUST AINING THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES TO THE EXTENT OF 25% OF THE PURCHASES; HE OUGHT TO HAVE CONFINED THE ADDITION BY TAKING THE AVERAGE GROSS PROFIT OF LAST 3 - 5 YEARS TO WORK OUT THE GROSS PROFIT FOR THE YEAR . FURTHER IT IS STATED THA T THE LD. CIT(A) ERRED IN NOT ADOPTING THE METHODOLOGY OFFERED BY THE ASSESSEE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS THE PROPRIETOR OF NEHAL STEEL CORPORATION AND TRADES IN IRON AND STEEL. THE ORIGINAL RETURN OF INCOME WAS PRO CESSED U/S 143(1). THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE DIRECTOR GENERAL OF INCOME TAX (INV.) THAT THE ASSESSEE HAD MADE BOGUS PURCHASES OF RS.2,25,72,581/ - IN AY 2009 - 10, RS. 2,43,30,038 / - IN AY 2010 - 11 AND RS.2,81, 43,532 / - IN AY 2011 - 1 2. ON THE BASIS OF THE SAID INFORMATION THE AO ISSUED NOTICE U/S 148. THE AO NOTED THAT THE ASSESSEE HA D CLAIMED TO HAVE MADE PURCHASES FROM THE FOLLOWING NUMBER OF PARTIES IN THE ABOVE ASSESSMENT YEARS: AY NO. OF PARTIES AMOUNT INVOLVED (RS.) 2009 - 10 30 2,25,72,581/ - 2010 - 11 20 2,43,30,038 / - 2011 - 12 41 2,81,43,532/ - THE AO , TO VERIFY THE GENUINENESS OF PURCHASES , ISSUED NOTICE U/S 133(6) ON RANDOM BASIS TO SOME PARTIES BY SPEED POST AT THE ADDRESS GIVEN BY THE ASSESSEE. THE DETAILS ARE AS UNDER: NEHAL H. SHAH ITA NO. 3520, 3521, 3522/MUM/2016 3 AY NOTICE U/S 133(6) ISSUED NOTICE U/S 133(6) SERVED NOTICE U/S 133(6) RETURNED BACK BY THE POSTAL AUTHORITIES WITH THE REMARK UNCLAIMED, NOT KNOWN, ADDRESS IN COMPLETE 2009 - 10 13 PARTIES 3 PARTIES 10 PARTIES 2010 - 11 5 PARTIES 1 PARTY 4 PARTIES 2011 - 12 7 PARTIES 1 PARTY 6 PARTIES IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN THE ABOVE ASPECTS, THE ASSESSEE FILED A REPLY BEFORE HIM. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAME AS THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA HAD CONDUCTED INDEPENDENT INQUIRIES ON EACH OF THE HAWALA PARTIES AND CONCLUSIVELY PROVED THAT THE PARTIES WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY. THE AO HAS MENTIONED THE DEPOSITION OF THE FOLLOWING PARTIES: AY DEPOSITION 2009 - 10 DEPOSITION AND AFFIDAVIT (I) DATED 16.06.2009 OF SHRI GIRISH R. SHAH, PROP. M/S GAUTAM TRADERS AND M/S SAMBHAV TRADERS, (II) DATED 18.07.2011 OF SHRI RAJAN KUMAR KESHAVLAL MODI, PROP. M/S BRIGHT CORPORATION AND (III) DATED 12.07.2011 OF SHRI GIRISH F. MEHTA, PROP. M/S VATS CORPOR ATION 2010 - 11 DEPOSITION AND AFFIDAVIT (I) DATED 18.07.2011 OF SHRI RAJAN KUMAR KESHAVLAL MODI, PROP. M/S BRIGHT CORPORATION, (II) DATED 12.07.2011 OF SHRI GIRISH F. MEHTA, PROP. M/S VATS CORPORATION, 2011 - 12 DEPOSITION AND AFFIDAVIT (I) DATED 18.07 .2011 OF SHRI RAJAN KUMAR KESHAVLAL MODI, PROP. M/S BRIGHT CORPORATION AND (II) DATED 12.07.2011 OF SHRI GIRISH F. MEHTA, PROP. M/S VATS CORPORATION FROM THE DEPOSITIONS AND AFFIDAVITS OF THE ABOVE PARTIES, THE AO FOUND THAT THE ASSESSEE HAD NOT PURCHASED ANY GOODS FROM THEM. THE PARTIES CATEGORICALLY STATED THAT THEY HA D NOT DONE ANY PURCHASE AND SALE OF GOODS BUT HA D ONLY ISSUE D THE BILLS FOR EARNING COMMISSION. THEY HA D NOT PREPARED AND/OR MAINTAINED ANY BOOKS OF ACCOUNTS. NEHAL H. SHAH ITA NO. 3520, 3521, 3522/MUM/2016 4 IN VIEW OF THE ABOV E FACTS, THE AO MADE AN ADDITION OF RS.2,25,72,581/ - IN THE AY 2009 - 10, RS.2,43,30,038/ - IN THE AY 2010 - 11 AND RS.2,81,43,532/ - IN THE AY 2011 - 12 AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APP EAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE AVERAGE G.P. RATIO OF THE ASSESSEE FOR SIX YEARS FROM AY 2006 - 07 TO AY 2010 - 11 WAS AROUND 4.80%. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 25% OF THE PURCHASE PRICE FOR THE ABOVE ASSESSMENT YEARS. 5. THE ASSESSEE HAS FILED A WRITTEN SUBMISSION BEFORE THE TRIBUNAL STATING THAT HE IS NOT IN A POSITION TO HIRE THE SERVICES OF A COUNSEL AND THE WRITTEN ARGUMENT FILED BY HIM MAY BE TAKEN INTO ACCOUNT. IN THE WRITTEN SUBMISSION, HE HAS STATED THAT THE LD. CIT(A) HAS ERRED IN REJECTING THE WRITTEN REQUEST OF THE ASSESSEE TO TAKE THE AVERAGE G.P. OF LAST 3 - 4 YEARS IN ALMOST SIMILAR BUSINESS A ND INSTEAD PREFERRED TO CONFIRM THE ESTIMATE @ 25% OF THE PURCHASE VALUE AS THE ADDITIONAL INCOME WHICH IS LESS LO GICAL THEN ADOPTING AVERAGE G.P. OF LAST FEW YEAR S. FURTHER IT IS STATED BY HIM THAT GATHERING OF DOCUMENTS/DATAS BY VAT AUTHORITY AND THEIR I NFERENCES WITH ALTOGETHER DIFFERENT OBJECTIVES CAN NEVER BE T HE SOLE BASE FOR MAKING ADDITION OF SUCH A LARGE AMOUNT. 6. PER CONTRA THE LD. DR SUBMITS THAT THE LD. CIT(A) HAS RIGHTLY AND REASONABLY ESTIMATED THE PROFIT @ 25% OF THE PURCHASE PRICE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF CIT VS. SIMIT P. SHETH (2013) 38 TAXMANN.COM (GUJ), THE HONBLE GUJARAT HIGH COURT HAS HELD THAT NEHAL H. SHAH ITA NO. 3520, 3521, 3522/MUM/2016 5 WHERE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER T HAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT, NOT ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. THE HONBLE HIGH COURT HAS REFERRED TO A SIMILAR VIEW TAKEN IN THE CASE OF CIT VS. VIJAY M. MISTRY CONSTRUCTION LTD. [2013] 355 ITR 498 (GUJ) AND CIT VS. BHOLANATH POLY FAB (P) LTD. [2013] 355 ITR 290 (GUJ). AS MENTIONED HEREINBEFORE THE ASSESSEE FAILED TO SUBSTANTIATE HIS CLAIM OF EXPENDITURE OF RS.2,25,72,581/ - MADE FROM 30 PARTIES IN AY 2009 - 10; RS.2,43,30,038/ - FROM 20 PARTIES IN AY 2010 - 11 AND RS.2,81,43,532/ - FROM 41 PARTIES IN AY 2011 - 12. WE HAVE DELINEATED HEREINBEFORE THE FACTS AND CIRCUMSTANCES OF THE CASE. HAVING REGARD TO THE ABOVE, WE DIRECT THE AO TO ESTIMATE PROFIT @ 12.5% OF THE ABOVE PURCHASE S FOR THE IMPUGNED ASSESSMENT YEARS . 8. IN THE RESULT, THE APPEALS ARE P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 11/10/2017. SD/ - SD/ - (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 11/10/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. NEHAL H. SHAH ITA NO. 3520, 3521, 3522/MUM/2016 6 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI