YOGESH M. DOSHI, MUMBAI V. ACIT- 27 (3), MUMBAI

ITA 3564/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2291 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 24-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained expenditure; Opportunity of cross examination; Tangible material; Third party statement; Accommodation entries; Set aside
• Section: 69C; 143(3); 142(1); 133(6); 143(1); 131; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3564/MUM/2018 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 3565/MUM/2018 ASSESSMENT YEAR: 2011 - 12 YOGESH M. DOSHI, 7, VANIKA NIWAS KAMA LANE, GHATKOPAR (W), MUMBAI - 400086. VS. ACIT - 27(3), VASHI, NAVI MUMBAI. PAN NO. AAHPD5571A APPELLANT RESPONDENT ASSESSEE BY : M R . SASHANK DUNDU, AR REVENUE BY : MR. NITIN WAGHMODE, DR DATE OF HEARING : 23/08/2019 DATE OF PRONOUNCEMENT : 28/08/2019 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 25, MUMBAI [IN SHORT CIT(A) ] AND ARISE OUT OF ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE OFF THESE APPEAL THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. FACTS BEING IDENTICAL WE BEGIN WITH THE ASSESSMENT YEAR (AY) 2010 - 11. 2. THE 1ST GROUND RAISED IN THIS APPEAL IS AGA INST THE REOPENING DONE BY THE AO VIDE NOTICE U/S 148 DATED 08.05.2015. YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 2 THE BRIEF FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE AY 2010 - 11 ON 07.10.2010 DECLARING TOTAL INCOME AT RS.17,94,210/ - . THE RETURN OF INCOME WAS PROCESSED U/S 143 (1) OF THE ACT. THE ASSESSING OFFICER (AO) REOPENED THE ASSESSMENT ON THE BASIS OF THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS AMOUNTING TO RS.2,78, 05, 034/ - FROM TWO DEALERS. THE DETAILS ARE AS UNDER : TIN OF THE DEALERS NAME OF THE DEALERS FINANCIAL YEAR AMOUNT OF BILL (RS) 27880639276V PADMALAXMI STEEL AND ALLOYS PVT. LTD. 2009 - 10 226,90,569 27720732387V CEEPORT IRON & STEEL PVT. LTD. 2009 - 10 51,14,465 TOTAL 2,78,05,034 3. THE LD. COUNSEL FOR THE ASSESSEE ARGUES THAT THE NOTICE U/S 148 DATED 08.05.2015 ISSUED BY THE AO IS BEYOND THE PERIOD OF FOUR YEARS AND AS THE REOPENING HAS BEEN DONE WITHOUT ANY TANGIBLE MATERIAL, THE ORDER PASSED BY THE CIT(A) CONF IRMING THE REOPENING BE SET ASIDE. ON THE OTHER HAND, THE LD. DR SUBMITS THAT IN THE INSTANT CASE, THE AO HAS REOPENED THE ORIGINAL ASSESSMENT PROCESSED U/S 143(1) ON THE BASIS OF TANGIBLE MATERIAL RECEIVED FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA AND THEREFORE, THE REOPENIN G BE UPHELD. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS MENTIONED EARLIER, THE RETURN OF INCOME DATED 07.10.2010 FILED BY THE ASSESSEE DECLARING TOTAL INCOME AT RS.17,94,210/ - WAS PROCESSED U/S 143(1) OF THE AC T. THEREAFTER, THE AO RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 3 THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS FROM TWO DEALERS. THE DETAILS ARE MENTIONED AT PARA 2 HEREINBEFORE. THE HONBLE SUPREME COURT IN THE CAS E OF ACIT V. RAJESH JHAVERI STOCK BROKERS P. LTD. (2007) 291 ITR 500 (SC) ANALYZED THE DISTINCTION BETWEEN THE ACCEPTANCE OF A RETURN U/S 143(1) AND AN ASSESSMENT WHICH IS FRAMED U/S 143(3) OF THE ACT. IN THE FORMER CASE, THE AO WOULD HAVE MUCH WIDER LATIT UDE TO REOPEN THE ASSESSMENT. IN THE CASE OF AVIRAT STAR HOMES VENTURE P. LTD. V. ITO (2019) 411 ITR 321 (BOM), THE HONBLE BOMBAY HIGH COURT REFERRING TO THE ABOVE DECISION HAS HELD : THAT THE RETURN HAD BEEN ACCEPTED WITHOUT SCRUTINY. THE INCOME - TAX IN VESTIGATION HAD SUBSEQUENTLY PROVIDED INFORMATION ABOUT CERTAIN COMPANIES HAVING BANK ACCOUNTS WITH A BANK IN KOLKATA AND WHO WERE INVOLVED IN GIVING ACCOMMODATION ENTRIES OF VARIOUS NATURE TO SEVERAL BENEFICIARIES INCLUDING THE ASSESSEE. THE INFORMATION S UPPLIED BY THE INVESTIGATION WING TO THE ASSESSING OFFICER FORMED A PRIMA FACIE BASIS TO ENABLE THE ASSESSING OFFICER TO FORM A BELIEF OF INCOME CHARGEABLE TO TAX HAVING ESCAPED ASSESSMENT. THE ASSESSING OFFICER PERUSED THE INFORMATION SUPPLIED BY THE INVE STIGATION WING AND HAVING FORMED THE BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, COULD NOT BE STATED TO HAVE ACTED MECHANICALLY. FURTHER, THE MERE FACT THAT THE ASSESSEE HAD ASKED FOR CERTAIN INFORMATION FROM THE ASSESSING OFFICER, WHICH A T THIS STAGE WAS NOT SUPPLIED, WOULD NOT INVALIDATE THE REASONS RECORDED BY THE ASSESSING OFFICER IN ISSUING THE NOTICE. THE NOTICE WAS VALID. THUS IN THE INSTANT CASE, THE AO HAS RIGHTLY ISSUED NOTICE U/S 148 FOR REOPENING THE RETURN OF INCOME PROCESSE D U/S 143(1) OF THE ACT. THEREFORE, THE 1ST GROUND OF APPEAL IS DISMISSED. 5. THE 2ND GROUND RAISED IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE ORDER OF THE AO IN DISALLOWING THE PURCHASES MADE FROM TWO PARTIES TOTALLING TO RS.34,75,629/ - @ 12.5% OF ALLEGED BOGUS PURCHASES OF RS.2,78,05,034/ - . YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 4 THE FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ISSUED NOTICES U/S 133(6) TO THE SAID TWO PARTIES. THOSE NOTICES WERE RETURNED UN - SERVED BY THE P OSTAL AUTHORITIES. THE AO VIDE HIS OFFICE ORDER SHEET ENTRY DATED 16.12.2015 BROUGHT THIS FACT TO THE NOTICE OF THE ASSESSEE. AS RECORDED BY THE AO, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE EXPRESSED HI S INABILITY TO PROVIDE THE NEW ADDRESS OF THE ABO VE PARTIES SO AS TO FACILITATE THE ISSUANCE OF SUMMONS U/S 131 OF THE ACT. THE ASSESSEE ALSO COULD NOT PRODUCE THE ABOVE TWO PARTIES BEFORE THE AO FOR VERIFICATION. THE AO ALSO NOTED THAT, AL THOUGH REQUESTED TO FURNISH THE DETAILS OF PURCHASES VIDE NOTICE U/S 142(1) DATED 23.10.2015, THE ASSESSEE FAILED TO PRODUCE BEFORE HIM (I) DELIVERY CHALLAN, LORRY RECEIPT AND DETAILS OF UNLOADING/LOADING CHARGES WITH DOCUMENTARY PROOF AND (II) STOCK REGISTER , TO SUBSTANTIATE HIS CLAIM THAT THE GOODS WERE ACTUALLY PURCH ASED AND DELIVERED TO HIM. ON THE BASIS OF THE ABOVE FACTS, THE AO ARRIVED AT A FINDING THAT THE ASSESSEE HAD INFLATED THE PURCHASES. THEREFORE, THE AO ESTIMATED THE PROFIT @ 12.5% ON THE ABOVE DISPUTED PURCHASES OF RS.2,78,05,034/ - AND MADE AN ADDITION OF RS.34,75,629/ - AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. 6. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) VIDE ORDER DATED 01.03.2018 AGREED WITH THE REASONS GIVEN BY THE AO AND C ONFIRMED THE ADDITION OF RS.34,75,629/ - . 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT WHILE CONFIRMING THE ORDER OF THE AO, THE LD. CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE IS REGISTERED UNDER THE EXCISE VIDE REGISTRATION NUMBER : AAHPD5571AX001 HAVING WAREHOUSE AT M/S GUPTA UDYOG, B - 17, MIDE, TALOJA, DIST - RAIGAD, NEW MUMBAI - 410208 AND ALSO PURCHASES ARE DULY YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 5 SUPPORTED BY BANK STATEMENT SHOWING PAYMENT MADE TO SUPPLIER, PURCHASE BILLS, LEDGER A/C, QUANTITATIVE DETAILS ETC. WHICH WERE FURNISHED BEFORE LOWER AUTHORITIES. IT IS FURTHER EXPLAINED BY HIM THAT MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT AND THIRD PARTY STATEMENT, WITHOUT PROVIDING AN OPPORTUNITY FOR CROSS - EXAMINATION, PURCHASES CANNOT BE TR EATED AS NON - GENUINE. IT IS ALSO STATED THAT DETAILS OF SALE INVOICE WERE FILED BEFORE THE AO ALONG WITH A CHART SHOWING SALE OF THOSE MATERIALS ALONG WITH CORRESPONDING PURCHASES. THUS IT IS STATED THAT MERELY BECAUSE THOSE PARTIES FAILED TO RESPOND TO NO TICE U/S 133(6) ISSUED BY THE AO, ADDITION U/S 69C CANNOT BE MADE. FURTHER, THE LD. COUNSEL SUBMITS THAT THE PERCENTAGE OF 12.5% ARRIVED AT BY THE AO IS WITHOUT ANY BASIS BECAUSE THE GROSS PROFIT S OF THE ASSESSEE OVER THE YEARS HAVE REMAINED IN THE RANGE O F 2% TO 2.5%. FINALLY, THE LD. COUNSEL RELIES ON THE ORDER OF THE HONBLE BOMBAY HIGH COURT DATED 11.02.2019 IN PR. CIT V. M/S MOHOMMAD HAJI ADAM & CO. (ITA NO. 1004 OF 2016) AND THE ORDER OF THE TRIBUNAL DATED 16.05.2019 IN VR ENTERPRISES V. ITO (ITA NO. 4650/MUM/2018 FOR AY 2009 - 10) 8. ON THE OTHER HAND, THE LD. DR SUBMITS THAT IN THE INSTANT CASE, THE AO VIDE ORDER SHEET ENTRY DATED 16.12.2015 INFORM ED THE ASSESSEE THAT THE NOTICES ISSUED U/S 133(6) COULD NOT BE SERVED. IN RESPONSE TO IT, THE ASSESSEE EXPRESSED HIS INABILITY TO PROVIDE THE NEW ADDRESS OF THE ABOVE TWO PARTIES. FOR THIS REASON, THE AO COULD NOT ISSUE SUMMONS U/S 131 OF THE ACT. ALSO, THE ASSESSEE COULD NOT PRODUCE BEFORE THE AO THE ABOVE TWO PARTIES FOR VERIFICATION. AS OBSERVED BY THE AO, THE ASSESSEE FAILED TO PRODUCE THE DETAILS OF CHALLAN, LORRY RECEIPTS, STOCK REGISTER. WE ARE OF THE CONSIDERED VIEW THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE A REASONABLE PROFIT BE ESTIMATED. THE NATURE OF YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 6 BUSINESS OF THE ASSE SSEE IS TRADING IN IRON AND STEEL. IN THE CASE OF M/S MOHOMMAD HAJI ADAM & CO. (SUPRA), DURING THE COURSE OF SURVEY OPERATIONS IN THE CASE OF ENTITIES FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES, THE DEPARTMENT COLLECTED INFORMATION SUGGESTIN G THAT SUCH PURCHASES WERE NOT GENUINE. THE AO NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES OF FABRICS WORTH RS.29.41 LAKHS FROM THREE GROUP CONCERNS, NAMELY M/S MANOJ MILLS, M/S ASTHA SILK INDUSTRIES AND M/S SHRI RAM SALES AND SYNTHETICS. ON THE BASIS OF STATEMENT RECORDED DURING SUCH SURVEY OPERATIONS, THE AO CONCLUDED THAT THE SELLING PARTIES WERE ENGAGED ONLY IN SUPPLYING THE BOGUS BILLS, THAT THE GOODS IN QUESTION WERE NEVER SUPPLIED TO THE ASSESSEE, AND THEREFORE, THE PURCHASES WERE BOGUS. HE, THEREF ORE, ADDED THE ENTIRE SUM IN THE HANDS OF THE ASSESSEE AS ITS ADDITIONAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO ACCEPTED THE FACTUM OF PURCHASES BEING BOGUS. HOWEVER, HE COMPARED THE PURCHASES AND SALES STATEMENTS OF THE A SSESSEE AND OBSERVED THAT THE DEPARTMENT HAD ACCEPTED THE SALE, AND THEREFORE, THERE WAS NO REASON TO REJECT THE PURCHASES, BECAUSE WITHOUT PURCHASES THERE CANNOT BE SALES. HE, THEREFORE, HELD THAT UNDER THESE CIRCUMSTANCES THE AO WAS NOT CORRECT IN ADDING THE ENTIRE AMOUNT OF PURCHASES AS THE ASSESSEES INCOME. HE, THEREFORE, DELETED THE ADDITION REFRESHING IT TO 10% OF THE PURCHASE AMOUNT. HE ALSO DIRECTED THE AO TO MAKE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE AS PER THE BOOKS O F ACCOUNTS ON UNDISPUTED PURCHASES AND GROSS PROFIT ON SALES RELATING TO THE PURCHASES MADE FROM THE SAID THREE PARTIES. THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. THE REVENUE ALSO CARRIED THE ISSUE BEFORE THE TRIBUNAL. THE TRIBUNAL ALLOWED THE A PPEAL OF THE ASSESSEE PARTLY AND DISMISSED THAT OF THE REVENUE. THE TRIBUNAL NOTED THAT THE CIT(A) HAD NOT GIVEN ANY REASONS FOR RETAINING 10% OF THE PURCHASES BY WAY OF AD - HOC ADDITIONS. THE TRIBUNAL, YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 7 THEREFORE, DELETED SUCH ADDITIONS, BUT RETAINED THE PO RTION OF THE ORDER OF THE CIT(A) TO THAT EXTENT HE PERMITTED THE AO TO TAX THE ASSESSEE ON THE BASIS OF DIFFERENCE IN THE GP RATES. IN FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT, THE REVENUE REFERRED TO THE DECISION OF THE DIVISION BENCH OF THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. V. DCIT IN TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20.06.2016 AND ALSO POINTED OUT THAT THE SLP AGAINST SUCH DECISION WAS DISMISSED BY THE HONBLE SUPREME COURT. THE HONBLE B OMBAY HIGH COURT HELD : 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WER E BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES 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 DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTE NT OF BRINGING 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 (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGME NT THE COURT HELD AND OBSERVED AS UNDER - SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,70,78,125/ - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REG ULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 IS CONCERNED, WE ARE OF THE VIEW THAT YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 8 THE ASSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS 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 ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES 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 DIRE CT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. WE FIND THAT THE FACTS IN THE INSTANT CASE ARE SIMILAR TO THE ABOVE DECISION. FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON DISPUTED PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. FACTS BEING IDENTICAL, OUR ABOVE DECIS ION FOR THE AY 2010 - 11 APPLIES MUTATIS MUTANDIS TO AY 2011 - 12. 9. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2019. SD/ - SD/ - (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/08/2019 RAHUL SHARMA, SR. P.S. YOGESH M. DOSHI ITA NOS. 3564 & 3565/MUM/2018 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI