SOBHAGMULL GOKAL CHAND JEWELLERS, MUMBAI V. ACIT-19(3), MUMBAI

ITA 3771/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5949 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: SUNIL HIRAVAT
• Keywords: Reopening of assessment; Bogus purchase; Question of law; Wrong claim; Accommodation entries
• Section: 69C; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO S . 3767, 3768 & 3771 /MUM/201 8 (A.Y S : 2008 - 09, 2009 - 10 & 2013 - 14) M/S. SOBHAGMULL GOKAL CHAND JEWELLERS C/O. KARNAVAT & CO., 2A KITAB MAHAL 1 ST FLOOR , 192 DR. D.N. ROAD MUMBAI 400 001 PAN: AAKFS 9735 L V. ACIT 19(3) ROOM NO. 206 MATRU MANDIR GRANT ROAD MUMBAI 400 007 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL HIRAVAT DEPARTMENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 04 .06.2019 DATE OF PRONOUNCEMENT : 31 .07 .2019 O R D E R PER C. N. PRASAD (JM) 1. THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) 51, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 16.03.2018 FOR THE A.YS. 2008 - 09, 2009 - 10 AND 2013 - 14. 2. FOR THE A.YS. 2008 - 09 & 2009 - 10 THE ASSESSEE CHALLENGED THE ORDER OF THE LD.CIT(A) IN SUSTAINING THE REOPENING OF ASSESSME NT AND ON MERITS 2 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI IN ESTIMATING THE PROFIT ELEMENT FROM ALLEGED BOGUS PURCHASES @3% . FOR THE A.Y. 2013 - 14 THE ASSESSEE CHALLENGED THE ORDER OF THE LD.CIT(A) IN ESTIMATING THE PR OFIT ELEMENT AT 3% ON ALLEGED BOGUS PURCHASES . 3. IN SO FAR A S THE GROUND RELATING TO CHALLENGING THE VALIDITY OF REASSESSMENT ORDER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT GROUND NOS. 1 & 2 OF THE GROUNDS OF APPEAL ARE NOT PRESSED. IN VIEW OF THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE GROUND NOS. 1 &2 RELATING TO REOPENING OF ASSESSMENT ARE DISMISSED AS NOT PRESSED. 4. COMING TO THE MERITS OF THE CASE B RIEFLY STATED , THE FACTS ARE THAT, THE ASSESSMENTS FOR THE A .YS. 2008 - 09 AND 20 09 - 10 WERE REOPENED CONSEQUENT TO THE INFORMATION RECEIVED FROM DGIT (IN V.), MUMBAI THAT SHRI BHANWARLAL JAIN IS ONE OF THE ENTRY PROVIDERS OPERATING FOR PROVIDING ACCOMMODATION ENTRIES IN THE NATURE OF BOGUS PURCHASES, SALES ETC., IT WAS NOTICED THAT ASSESSEE WAS ONE OF THE BE NEFICIARIES FRO M THE CONCERNS OPERATED BY SHRI BHANWARLAL JAIN AND ASSESSEE OBTAINED ACCOMMODATION ENTRIES FROM THE SAID CONCERNS WITHOUT ANY TRANSPORTATION OF GOODS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES AND THE ASSESSEE FURNISHED VARIOUS DETAILS IN RESPECT OF THE PURCHASES AND SALES MADE GIVING THE DETAILS OF INVOICES, PURCHASES, CORRESPONDING SALES AND PAYMENT DETAILS THROUGH 3 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI BANKING CHANNELS ETC., AND SUBMITTED THAT THAT PURCHASES MADE ARE GENUINE. NOT CONVINCED WITH THE SUBMISS IONS OF THE ASSESSEE BASED ON THE STATEMENT OF BHANWARLAL JAIN , THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT T HE ASSESSEE HAS OBTAINED ONLY ACCOMMODATION BILLS AND PURCHASED DIAMONDS IN GRAY MARKET. IT IS ALSO THE FINDING OF THE ASSESSING OFFICER THA T ASSESSEE IN HIS SUBMISSIONS HAS DEMONSTRATED THAT ALTHOUGH THE ASSESSEE MIGHT HAVE GOT THE DIAMONDS FROM GRAY MARKET BUT THE BILLS WERE OBTAINED FROM BHANWARLAL JAIN CONCERNS AT RATES WHICH ARE MORE OR LESS COMPARABLE TO GRAY MARKET. CONSIDERING ALL THE SE ASPECTS THE ASSESSING OFFICER ESTIMATED PROFIT MARGIN EMBEDDED IN THESE PURCHASE TRANSACTION S @5% OF THE VALUE AND THE SAME WAS DISALLOWED /ADDED . 5. ON APPEAL THE LD.CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CBDT INSTRUCTION NO . 2/08 DATED 22.02.2008 AND THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SETH [356 ITR 451] HE RESTRICTED THE PROFIT ELEMENT FROM SUCH PURCHASES AT 3% AS AGAINST 5% ESTIM ATED BY THE ASSESSING OFFICER. 6. BEFORE ME , THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE ALSO SUBMITTED THAT T HE DEALERS HAVE CONFIRMED THE SALES MADE TO THE ASSESSEE . THE LD. C OUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT ASSESSEE HAS ALREADY 4 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI DEC LARED OVER ALL GROSS PROFIT AT 6.52%, 7.0 8% AND 8.09% FOR THE A .YS. 2008 - 09, 2009 - 10 AND 2013 - 14 RESPECTIVELY. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE HAS ALREADY DECLARED HIGHER PROFITS THERE IS NO JUSTIFICATION IN ESTIMATING THE GROSS PROFIT ON PURCHASES , IN FACT GROSS PROFIT HAS TO BE ESTIMATED ON SALES AND NOT ON PURCHASES. 7. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT V. M/S. MOHOMMAD HAJI ADAM & CO. IN INCOME TAX APPEAL NO. 1004 OF 2016 DATED 11.02.2019. 8. HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ASSESSING OFFICER ESTIMATED THE PROFIT ELEMENT FROM THE PURCHASES MADE BY THE ASSESSEE FROM VARIOUS CONCERNS OF BHANWARLAL JAIN AT 5% OF TH E ENTIRE PURCHASES AND THE LD.CIT(A) RESTRICTED THE SAME TO 3%. IT IS THE SUBMISSION OF THE LD. COUNSEL THAT GROSS PROFIT TO BE CALCULATED ON SALES AND NOT ON PURCHASES. THIS CONTENTION IS CONTRARY TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT WHEREIN THE HON'BLE HIGH C OURT OBSERVED THAT THE TRIBUNAL CORRECTLY RES TRICTED THE ADDITION LIMITED TO THE EXTENT OF BRIN G ING THE GROSS PROFIT RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. WHILE HOLDING SO , THE HON'BLE HIGH COURT OBSERVED AS UNDER: 5 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI ALL THESE APPEALS ARISE OUT OF COMMON JUDGMENT OF THE INCOME TAX APPELLATE TRIBUNAL. THE FACTS IN ALL THESE APPEALS BEING SAME, WE MAKE IT FROM ITXA NO. 1004 OF 2016. THE REVENUE - APPELLANT HAS RAISED FOLLOWING QUESTIONS FOR OUR CONSIDERATION (A) WHETHE R ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN NOT CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES SHOWN TO HAVE BEEN MADE THROUGH HAWALA TRANSACTIONS FROM CERTAIN PARTI ES WHO WERE ONLY PROVIDING ACCOMMODATION SALE BILLS? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHERE EVIDENTLY NO PURCHASES WERE MADE FROM THESE PARTIES WHO WERE ISSUING ONLY BOGUS ACCOMMODATION BILLS AND THIS FINDING HAS B EEN ACCEPTED BY THE CIT(A) AND THE ITAT, THE ITAT, WITHOUT ANY EVIDENCE, WAS JUSTIFIED IN PRESUMING THAT THERE MUST HAVE BEEN PURCHASES AND THEREUPON GIV ING HUGE RELIEF TO THE ASSESSEE ? (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER OF THE HON'BLE ITAT IS PERVERSE AS NO REASONABLE PERSON ACTING JUDICIALLY AND PROPERLY INSTRUCTED IN THE RELEVANT LAW COULD ARRIVE AT SUCH A FINDING ON THE EVIDENCE ON RECORD? 2 THE ISSUES RELATE TO THE ASSESSMENT YEAR ('A.Y.' FOR SHORT) C ONCERNING THE RESPONDENT - ASSESSEE WHO IS A TRADER OF FABRICS. DURING THE SURVEY OPERATIONS IN CASE OF THE ENTITIES FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES, THE DEPARTMENT COLLECTED INFORMATION SUGGESTING THAT SUCH PURCHASES WERE NOT GEN UINE. THE ASSESSING OFFICER ('A.O.' FOR SHORT) NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES OF FABRICS WORTH RS.29.41 LACS (ROUNDED OFF) FROM THREE GROUP CONCERNS, NAMELY, M/S MANOJ MILLS, M/S ASTHA SILK INDUSTRIES AND M/S SHRI RAM SALES & SYNTHETICS. ON THE BASIS OF THE STATEMENT RECORDED DURING SUCH SURVEY OPERATIONS, THE A.O. 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, THEREFORE, ADDED THE ENTIRE SUM IN THE HANDS OF THE ASSESSEE AS ITS ADDITIONAL INCOME. 3 THE ASSESSEE CARRIED THE MATTER IN THE APPEAL BEFORE THE COMMISSIONER OF APPEALS WHO ACCEPTED THE FACTUM OF PURCHASES BEING BOGUS. HOWEVER, HE COMPARED THE PURCHASES AND SALES STATEMENT OF THE ASSESSEE 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 CIRCUMS TANCES A.O. WAS NOT CORRECT IN ADDING THE ENTIRE AMOUNT OF PURCHASES AS THE ASSESSEE'S INCOME. HE, THEREFORE, DELETED THE ADDITION REFRESHING IT TO 10 % OF THE PURCHASE AMOUNT. HE ALSO DIRECTED THE A.O. TO MAKE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE AS PER THE BOOKS OF ACCOUNTS ON UNDISPUTED PURCHASES AND GROSS PROFIT ON SALES RELATING TO THE PURCHASES MA DE FROM THE SAID THREE PARTIES. 4 THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. THE REVENUE ALSO CARRIED THE ISSUE BEFOR E THE TRIBUNAL. THE TRIBUNAL IN THE IMPUGNED JUDGMENT ALLOWED THE APPEAL 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, THEREFORE, DELETED SUCH ADDITIONS, BUT RETAINED THE PORTION OF THE ORDER OF THE CIT(A) TO THAT EXTENT HE PERMITTED THE A.O. TO TAX THE ASSESSEE ON THE BASIS OF DIFFERENCE IN THE GP RATES. 5 LEARNED COUNSEL MR CHHOTARAY FOR THE REVENUE STRENUO USLY CONTENDED THAT THE CIT(A) AND THE TRIBUNAL COMMITTED SERIOUS ERROR. IN THE PRESENT CASE WHEN IT WAS ESTABLISHED THAT THE PURCHASES ARE BOGUS, THE ENTIRE AMOUNT SHOULD HAVE BEEN ADDED TO THE INCOME OF THE ASSESSEE. THERE IS NO QUESTION OF GRANTING ANY 6 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI RELIEF IN THE FACTS OF THE CASE. IN THIS CONTEXT HE RELIED ON A DECISION OF THE DIVISION BENCH OF GUJRAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. VS DY. C.I.T. IN TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20TH JUNE, 2016. IN SUCH JU DGMENT THE COURT HAD OBSERVED AS UNDER THE TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD. VS. CIT HAD OBSERVED THAT IT WOULD BE JUST AND PROPER TO DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION IN RESPECT OF THE UNDISCLOSED INCOME RELATING TO THE PU RCHASES TO 25 % OF THE TOTAL PURCHASES. THE SAID DECISION WAS CONFIRMED BY THIS COURT AS WELL. ON CONSIDERATION OF THE MATTER, WE FIND THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THOSE OF M/S INDIAN WOOLEN CARPET FACTORY (SUPRA) OR M/S VIJAY PROTEI NS LTD. IN THE PRESENT CASE THE TRIBUNAL HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE HAD SHOWN BOGUS PURCHASES AMOUNTING TO RS.2,92,93,288/ - AND TAXING ONLY 25 % OF THESE BOGUS CLAIM GOES AGAINST THE PRINCIPLES OF SECTIONS 68 AND 69C OF THE INCOME TAX ACT . THE ENTIRE PURCHASES SHOWN ON THE BASIS OF FICTITIOUS INVOICES HAVE BEEN DEBITED IN THE TRADING ACCOUNT SINCE THE TRANSACTION HAS BEEN FOUND TO BE BOGUS. THE TRIBUNAL HAVING ONCE COME TO A CATEGORICAL FIDING THAT THE AMOUNT OF RS.2,92,93,288/ - REPRESENTE D ALLEGED PURCHASES FROM BOGUS SUPPLIERS IT WAS NOT INCUMBENT ON IT TO RESTRICT THE DISA LLOWANCE TO ONLY RS.73,23,322/ 6 COUNSEL POINTED OUT THAT THE S.L.P. AGAINST SUCH DECISION WAS DISMISSED BY THE SUPREME COURT. 7 ON THE OTHER HAND, MS KHAN LEARNED COU NSEL FOR THE ASSESSEE OPPOSED THE APPEALS CONTENDING THAT THE TRIBUNAL HAS GIVEN PROPER REASONS. THE ASSESSEE WAS A TRADER. EVEN IF THE PURCHASES ARE FOUND TO BE BOGUS, ENTIRE PURCHASE AMOUNT CANNOT BE ADDED BY WAY OF ASSESSEE'S INCOME. 8 IN THE PRESENT CA SE, 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 WERE 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 TRIBUN AL 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 EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT T HE 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.3,70,78,125/ - 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 REGULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 I S CONCERNED, WE ARE OF THE VIEW THAT 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 DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS G ROSS 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. 7 ITA NOS. 4193 & 4194/MUM/2018 (A.YS: 2012 - 13 & 2013 - 14) SHRI DINESH J LALWANI 9. IN THESE CIRCUMSTANCES, NO QUESTION OF LAW, THEREFORE, ARISES. ALL INCOME TAX APPEALS ARE DISMISSED, ACCORDINGLY. NO ORDER AS TO COSTS. 9. FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT (SUPRA) , I DIRECT THE ASSESSING OFFICER TO RESTRICT T HE ADDITION/DISALLOWANCE ONLY TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON ALLEGED BOGUS PURCHASES AT THE SAME RATE OF THE OTHER GENUINE PURCHASES DECLARED BY THE ASSESSEE AFTER CALLING FOR THE DETAILS AND VERIFICATION OF RECORDS. THE ASSESSEE IS DIRECTED TO FURNISH THE NECESSARY INFORMATION IN THIS REGARD . 10. IN THE RESULT, APPEAL S OF THE ASSESSEE FOR THE A.Y. 2008 - 09 AND 2009 - 10 ARE PARTLY ALLOWED FOR STATISTICAL P URPOSES AND APPEAL FOR THE A.Y. 2013 - 14 IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST JULY , 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 31 / 0 7 / 2019 GIRIDHAR, SR.PS 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