ITO - 19(2)(3), MUMBAI V. MITHALAL BHAVARLAL JAIN, MUMBAI

ITA 3777/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9141 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MICHAEL JERALDSR
• Keywords: Bogus purchase; Unexplained expenditure; Principle of natural justice; Opportunity of cross examination; Accommodation entries
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.3777/MUM/2018 ( ASSESSMENT YEAR: 2011-12 ) ITO-19(2)(3) ROOM NO.218, 2 ND FLOOR MATRU MANDIR, TARDEO ROAD MUMBAI-400 007 VS. MR. MITHALAL BHAVARLAL JAIN PRO.M/S.ARISTO PIPE & FITTINGS, SHOP NO.3 GROUND FLOOR,86/72 DURGADEVI STREET MUMBAI-400 004 PAN/GIR NO. ADMPJ5673P ( APPELLANT ) .. ( RESPONDENT ) & ITA NO.3436/MUM/2018 ( ASSESSMENT YEAR: 2011-12 ) MR. MITHALAL BHAVARLAL JAIN PRO.M/S.ARISTO PIPE & FITTINGS, SHOP NO.3 GROUND FLOOR,86/72 DURGADEVI STREET MUMBAI-400 004 VS. ITO-19(2)(3) ROOM NO.218, 2 ND FLOOR MATRU MANDIR, TARDEO ROAD MUMBAI-400 007 PAN/GIR NO. ADMPJ5673P (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI MICHAEL JERALD, SR. AR ASSESSEE BY NONE DATE OF HEARING 03/08 /2020 DATE OF PRONOUNCEME NT 03 /08 /20 20 / O R D E R PER G.MANJUNATHA: ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE REVENUE, AS WELL AS THE ASSESEE ARE DIRECTED AGAINST ORDER OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS)-30, MUMBAI, DATED 15/03/2018 A ND PERTAINS TO THE ASST.YEAR 2011-12. SINCE, FACTS ARE IDENTICAL A ND ISSUES ARE MITHALAL BHAVARLAL JAIN 2 COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY THIS CONSOLI DATED ORDER. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN NOT CONFIRMING THE A DDITION IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT DATED 10.01.2 017 IN THE CASE OF N. K. PROTEINS LTD. WHEREIN THE HON'BLE SUPREME COURT CONFIRMED THE ENTIRE ADDITION ON ACCOUNT OF BOGUS PURCHASE?' 2. 'WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF UNEXPLAINED EXPENDITURE OF RS. 76,68,201/- MADE ON ACCOUNT OF B OGUS PURCHASE BY THE ASSESSING OFFICER AND LIMITING IT TO 12.5%.' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN CONFIRMING THE ADDITION @12.5% PROFIT RATE ON TOTAL PURCHASES OF RS. 76,68,201/- MADE BY THE ASSESSEE FROM TWO PARTIES WHEN DURING THE INVESTIGATION MADE BY S ALES TAX DEPARTMENT OF MAHARASHTRA GOVERNMENT, IT WAS CONCLU SIVELY PROVED BEYOND DOUBT THAT THESE PARTIES ARE ONLY INTO PROVI DING ACCOMMODATION ENTRIES AND DO NOT DO ANY REAL BUSINE SS. ?' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN NOT APPRECIATIN G THE FACT THAT DURING THE INVESTIGATION MADE BY SALES TAX DEPARTMENT OF M AHARASHTRA GOVERNMENT, DIRECTORS/PROP./PARTNERS OF SUCH PARTIE S HAVE ACCEPTED ON OATH THAT THEY ARE PROVIDING ONLY ACCOMMODATION ENTRIES AND NOT DOING ANY REAL BUSINESS, THE TREATMENT OF SUCH PURC HASES AS BEING GENUINE DOES NOT HOLD GROUND?' 5. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET-ASIDE AND THAT OF THE AO BE RESTORED . 6. THE APPELLANT CRAVES LEAVE, TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ID. ASSESSING OFFICER AND CIT APPEAL ERRED I N ALLEGING THAT THE PURCHASES MADE ARE BOGUS BASED ON SURMISES AND CONJ ECTURES. 2. THE ID. ASSESSING OFFICER AND CIT APPEAL ERRED I N CONSIDERING EVIDENCE FOR MAKING DISALLOWANCE WITHOUT PROVIDING THE SAME TO THE ASSESSEE IN VIOLATION OF GROUNDS OF NATURAL JUSTICE . MITHALAL BHAVARLAL JAIN 3 3. THE ID. CIT APPEAL AND ASSESSING OFFICER ERRED IN MAKING ADDITION RELYING ON INVESTIGATION DONE BY SALES TAX DEPARTME NT WITHOUT DOING ANY INDEPENDENT INVESTIGATION. 4. THE ID. CIT APPEAL AND ASSESSING OFFICER ERRED IN MAKING AN ADDITION BASED ON STATEMENTS TAKEN BY SALES TAX DEPARTMENT W ITHOUT PROVIDING A COPY OF THE SAME OR AN OPPORTUNITY OF CROSS EXAMINATION IN VIOLATION OF GROUNDS OF NATURAL JUSTICE. 5. THE ID. CIT APPEAL AND ASSESSING OFFICER ERRED I N NOT CONSIDERING THE FACT THAT THE ASSESSEE HAS SUBMITTED ALL THE EVIDEN CES REQUIRED TO CLAIM THE EXPENSE OF PURCHASES. 6.THE ID. CIT APPEAL AND ASSESSING OFFICER ERRED IN STATING THAT ONUS OF PRODUCING THE PARTY WAS ON THE ASSESSEE IN SPITE OF THE FACT THAT THE ASSESSEE HAS NO POLICE POWERS AND IT WAS DEPARTMENT 'S CLAIM THAT THE PURCHASES WERE BOGUS. 7.WITHOUT PREJUDICE TO ABOVE GROUNDS OF APPEAL THE ID. CIT APPEAL ERRED IN MAKING AN ADDITION OF 12.3% OF PURCHASES WITHOUT CONSIDERING THE FACT THAT SUCH HUGE MARGIN CANNOT BE MADE IN TRADING BUS INESS OF FERROUS AND NON-FERROUS METALS AND THAT ADDITION OF 2% OF ABOVE PURCHASES WOULD MEET THE ENDS OF JUSTICE. 8. WITHOUT PREJUDICE TO ABOVE GROUNDS OF APPEAL TH E ID. CIT APPEAL ERRED IN MAKING AN ADDITION OF 12.3% OF PURCHASES WITHOUT APPRECIATING THAT VAT RATE ON PRODUCTS WAS 4% AND-THEREFORE, FOLLOWIN G THE JUDGEMENT IN THE CASE OF CIT V. SMITH SETH 2013 38 TAXMANN.COM 3 85. THE ADDITION SHOULD BE RESTRICTED TO 4% OF PURCHASES. 9. WE PLEAD TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 4. THE ASSESSEE IS PROPRIETOR OF M/S ARISTO PIPES A ND FITTINGS AND IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AN D NON-FERROUS METALS. THE CASE HAS BEEN SELECTED FOR SCRUTINY, AN D DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO, ON TH E BASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMB AI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHAR ASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WHO HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI A ND OTHER PLACES ISSUED SHOW CAUSE NOTICE AND CALLED UPON THE ASSESS EE TO PRODUCE DETAILS OF PURCHASES. IN RESPONSE, THE ASSESSEE HA S FILED VARIOUS MITHALAL BHAVARLAL JAIN 4 DETAILS. IN ORDER TO VERIFY GENUINENESS OF PURCHASE S, THE AO HAD ISSUED 133(6) NOTICES TO ALL PARTIES AND OUT WHICH SOME PARTIES ARE NOT RESPONDED OR NOTICES ISSUED ARE RETURNED INSERV ED AS LISTED BY THE AO IN PARA 5.1 OF HIS ASSESSMENT ORDER AMOUNTIN G TO RS. 1,32,27,342/-. THE ASSESSMENT HAS BEEN COMPLETED U/ S. 143(3) OF THE I.T.ACT, 1961 ON 24/03/2014 AND DETERMINED TOTA L INCOME OF RS. 83,57,460/-, AFTER MAKING ADDITIONS OF RS. 76,68,20 1/- TOWARDS PEAK AMOUNT OF INVESTMENTS MADE FOR UNPROVED OR ALLEGED BOGUS PURCHASE FROM THOSE PARTIES. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS REITRATED HIS ARGUMENTS MADE BEFORE THE LD. AO. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE L D.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHIC H IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COU LD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESS EE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) SCALED DOWN A DDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES TO 12.50% GROSS PROFIT ON TOTAL PURCHASES FROM THOSE PARTIES. 6. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD LD . DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. AO HAS MADE PEAK AMOUNT OF INVESTMENTS MADE ON ALLEGED BOGUS PURCHAS ES ON THE GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS ISSUE D BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN MITHALAL BHAVARLAL JAIN 5 BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENC E IN THE BACKDROP OF CLEAR FINDING BY INVESTIGATION WING THAT THOSE PART IES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELI VERY OF GOODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIG ATION CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-S ERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCL USION THAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE . IT IS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LOWER AUTHOR ITIES THAT PURCHASES FROM THE ABOVE PARTY ARE SUPPORTED BY NEC ESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPE R BANKING CHANNELS. 7. HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND AL SO, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HA VE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILE D TO TAKE THE INVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING O UT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RE CEIVED FROM INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT. UN DER THESE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, IN A CASE WHERE PURCHASES ARE CONSIDERED T O BE PURCHASED FROM SUSPICIOUS/HAWALA DEALERS, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF INVES TIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD THAT IN CASE O F PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA DEALERS, ON LY PROFIT MITHALAL BHAVARLAL JAIN 6 ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAX ED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD C ONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIME OF ESTIMATI ON OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARDSTICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. THE ITAT, M UMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSUE A ND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE GROSS PROFIT OF 5% TO 12.50% ON TOTAL ALLEGED BOGUS PURCHASES. I N THIS CASE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO HAS MADE PEAK AMOUNT INVESTED IN ALLEGED BGUS PURCHASES , WHEREAS THE LD.CIT(A) HAS SCALED DOWN ADDITION TO 12.50% GROSS PROFIT ON TOTAL ALLEGED BOGUS PURCHASE. ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT METHOD AND RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPORT SA ID RATE OF GROSS PROFIT WITH NECESSARY EVIDENCES OR ANY COMPARABLE C ASES. IN THIS CASE, THE ASSESSEE IS INTO THE BUSINESS OF TRADING IN FERROUS AND NON- FERROUS METALS AND THE RATE OF PROFIT IN THIS KIND OF BUSINESS IS VERY LOW. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED VIEW THAT 12.50% GR OSS PROFIT RATE ADOPTED BY THE LD. CIT(A) APPEARS TO BE ON HIGER SI DE AND HENCE, WE DIRECT THE LD. AO TO ESTIMATE 6% GROSS PROFIT ON AL LEGED TOTAL BOGUS PURCHASES FROM THOSE PARTIES. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE AND A PPEAL FILED BY THE ASSESSEE FOR ASST. YEAR 2011-12 IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS: 03/08/2 020 MITHALAL BHAVARLAL JAIN 7 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED:03/08/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//