NAVIN R. GALA MUMBAI, MUMBAI V. ITO 20(2)(4), MUMBAI

ITA 3608/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3361 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 25-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA
• Keywords: Bogus purchase; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER AND ITA NO.3608/MUM/2018 ASSESSMENT YEAR-2009-10 SHRI NAVIN R. GALA, 3-120, MHB COLONY, KALACHOWKY, COTTON GREEN, MUMBAI-400003 / VS. ITO - 20(2)(4), 4 TH FLOOR, PIRAMAL CHAMBER, LALBAUG, PAREL, MUMBAI-400003 PAN NO. AAFPG9082K ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY SHRI RUCHI M. RATHOD / REVENUE BY SHRI CHAITNYA ANJARIA / DATE OF HEARING : 22/04/2019 / DATE OF ORDER: 23/04/2019 / O R D E R PER SHAMIM YAHYA (ACCOUNTANT MEMBER) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER OF THE LD. CIT(A)-32, MUMBAI, DATED 11/01/2018 AND PERTAINS TO ASSESSMENT YEAR 2009-10, WHEREIN, THE ASSESSEE IS AGGRIEVED THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING 12.5% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. THE ASSESSING OFFICER IN THIS CASE HAS M ADE ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 2 12.5% ADDITION ON ACCOUNT OF BOGUS PURCHASE AMOUNTI NG TO RUPEES 4,44, 775/- UPON ASSESSEES APPEAL. LD. CIT A CONFIRMED THE SAME. 2. THE BRIEF FACTS IN THE CASE LEADING TO ASSESSMEN T OFFICERS ORDER ARE AS UNDER:- THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RESELLIN G PLASTIC FILES, FOLDERS, SHEETS, DISPLAY BAGS, CARDHOLDER AND STATIONARY GOODS UNDER THE NAME MONOPOLY PLASTICS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED GROSS PROFIT @ 10.71 % ON THE TURNOVER OF RS. 1,40,34,126/- ACCORDING TO THE INFORMATION RECEIVED FROM THE OFFICE OF DGIV (INV.) MUMBAI THE ASSESSEE HAS ACCEPTED ENTRIES IN RESPECT OF BOGUS PURCHASES FROM THE FOLLOWING PARTIES . S.NO. NAME OF THE PARTY AMOUNT 1. ENTECH ENTERPRISES RS.15,17,841 2. G. M. INTERNATIONAL RS. 13,65,947 3. SHREENAKODAJI IMPEX RS . 6,74,409 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS APPRAISED ABOUT THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT AND THE DGIT (INV.), MUMBAI. IN THE BACKDROP OF THIS FACT ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 3 ASSESSEE WAS ASKED TO FURNISH SUPPORTING EVIDENCE IN RESPECT OF THE PURCHASES MADE FROM THE ABOVE ENTITIES. THE ASSESSEE WAS SPECIFICALLY REQUIRED TO PROVIDE ALL THE MATERIAL EVIDENCES IN SUPPORT OF TH E PURCHASES MADE FROM THE IMPUGNED PARTIES TO PROVE THEIR GENUINENESS. FURTHER THE ASSESSEE WAS ALSO REQUIRED TO SUBMIT THE EXPLANATION IN WRITING AS TO WHY THE PURCHASES FROM THESE PARTIES SHOULD NOT BE HELD AS UNPROVED PURCHASES AND ACCORDINGLY THE VARIATION SHOULD NOT BE MADE IN RETURNED INCOME. IN RESPONSE TO THE ABOVE REQUIREMENT THE ASSESSEE PROVIDED THE EXPLANATION IN WRITING ALONG WITH THE OTHER DOCUMENTARY EVIDENCE LIKE COPIES OF PURCHASE BILLS, BANK STATEMENT MARKING THEIR PAYMENTS TO THE PARTIES, COPIES OF THE LEDGER ACCOUNTS, COPIES OF PURCHASE BILLS AND SUBSEQUENT SALE OF GOODS PURCHASED FROM THE ALLEGED BOGUS PARTIES ETC. THE EXPLANATION OFFERED BY THE ASSESSEE AND THE DOCUMENTARY EVIDENCE PRODUCED HAS BEEN CAREFULLY PERUSED AND CONSIDERED. THE ASSESSEE HAS VEHEMENTLY CLAIMED THAT ALLEGATIONS MADE BY THE SALES TAX DEPARTMENT IS TOTALLY UNTRUE AND INCORRECT. HE HAS STATED THAT FAILURE ON THE PART O F THE PARTIES FROM WHOM ASSESSE HAS MADE PURCHASES TO COMPLY WITH VAT PROVISIONS AND ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 4 MAKE PAYMENT ACCORDINGLY HAS MADE SCAPEGOAT TO HIM. HE HAS REITERATED IN HIS EXPLANATION THAT ALL THE PURCHASES ARE RECORDED IN THE BOOKS OF ACCOUNTS AND SUBSEQUENT ITEM WISE SALES OF GOODS PURCHASED. HE HAS ALSO PINPOINTED THAT THE PAYMENTS HAVE BEEN INVARIABLY MADE BY ACCOUNT PAYEE CHEQUES. HE HAS ALSO SUBMITTED THAT AVAILABILITY OF TIN AND VAT NUMBER COUPLED WITH BANK ACCOUNT PROVES THE IDENTITY OF THE SUPPLIER BEYOND DOUBT. IN THE BACKDROP OF THIS FACT, HE EMPHASIZED THAT BY NO STRETCH OF REASONING THE PURCHASES CAN BE HELD AS BOGUS. HOWEVER, THE ASSESSE HAS SUBMITTED THAT TO BUY PEACE AND TO AVOID PROLONGED STRENUOUS LITIGATIONS AT THE PROCEEDINGS HE AGREES THAT THE LAW LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT- VS. SIMIT P. SHETH ITANO.553 OF 2012 ORDER DT. 16- 01-2013 MAY BE APPLIED TO THE FACTS OF HIS CASE AND ADDITION ON ACCOUNT OF PROFITS SUPPRESSED DUE TO THIS TRANSACTION BY APPLYING GP PERCENTAGE MAY BE BROUGHT TO TAX. 3. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED TH E RECORDS. UP ON CAREFUL CONSIDERATION WE FIND THAT A SSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCH ASE. ADVERSE INFERENCE HAVE BEEN DRAWN DUE TO THE INABIL ITY OF ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 5 THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLE D LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLO WANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BE ING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTI ONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENT ERPRISES (IN WRIT PETITION NO 2860, ORDER DT 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCEN T ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN S ALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPL IES WERE TO GOVERNMENT AGENCY. 4. WE ALSO NOTE THAT THE HONOURABLE GUJARAT HIGH CO URT DECISION IN THE CASE OF PR CIT VS T R KAPADIA IN T AX APPEAL NO 691 OF 2017, WHEREIN, THE HONOURABLE HIGH COURT HAS CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT O F ALLEGED BOGUS PURCHASE AS NECESSARY DOCUMENTARY EVIDENCE FO R THE PURCHASE WERE ON RECORD THE SPECIAL LEAVE PETITION AGAINST THIS ORDER HAS BEEN DISMISSED BY THE HONOURABLE SUP REME ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 6 COURT IN ITS DECISION DATED 4/ 5/ 2018 S L P CIVIL DIARY NO 12670/2018. 5. IN THE PRESENT CASE THE FACTS OF THE CASE INDICA TE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. M AKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSE E SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION IN OUR CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES O F THE CASE THE 12.5 % DISALLOWANCE OUT OF THE BOGUS PURCH ASES MEETS THE END OF JUSTICE. HOWEVER IN THIS REGARD LE ARNED COUNSEL OF THE ASSESSEE HAS PRAYED THAT WHEN ONLY T HE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCH ASE TRANSACTION IS TO BE TAXED THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCED F ROM THE STANDARD 12.5% BEING DIRECTED TO BE DISALLOWED ON A CCOUNT OF BOGUS PURCHASE. 6. UP ON CAREFUL CONSIDERATION, WE FIND CONSIDERABL E COGENCY IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARDY T O THE ASSESSEE. ACCORDINGLY, WE MODIFY THE ORDER OF LEARN ED CIT-A ITA NO.3608MUM/2018, SHRI NAVIN R. GALA 7 AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RE STRICTED TO 12.5 % OF THE BOGUS PURCHASES AS REDUCED BY THE GRO SS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THE SE TRANSACTIONS. LD COUNSEL OF THE ASSESSEE FAIRLY ACC EPTED THIS PROPOSITION. 7. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/04/2019 SD/- S D/- (RAVISH SOOD) (SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 23/04/2019 F{X~{T? P.S/. .. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, 5. ( )*# !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) $%&', / ITAT, MUMBAI