VARMAN EXPORTS, MUMBAI V. ITO 19(3)(5), MUMBAI

ITA 3782/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4111 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 30-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Reopening of assessment; Accommodation entries; Reason to believe; Reassessment proceedings
• Section: 143(1); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER ITA NO S . 3781 TO 3785 /MUM/201 8 (A.Y S : 2008 - 09 TO 2012 - 13) M/S VAR NAM EXPORTS 28 MANSURALI MANSION 1 ST FLOOR, 2 ND BHATWADI LAN E MUMBAI 400 004 PAN: AABFV 4600 N V. INCOME TAX OFFICER - 1 9(3)(5 ) 2 ND FLOOR, MATRU MANDIR TARDEV ROAD, MUMBAI 400 007 (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. DINKLE HARIYA SHRI DIVYESH FOTARIA DEPARTMENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 03.05.2019 DATE OF PRONOUNCEMENT : 08 .05 .2019 O R D E R PER C. N. PRASAD (JM) 1. ALL THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 2, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 07.02.2018 FO R THE A.YS. 2008 - 09 TO 2012 - 13. 2. ASSESSEE CHALLENGED THE ORDERS OF THE LD. CIT(A) IN SUSTAINING THE REOPENING O F ASSESSMENT U/S. 147 OF THE ACT AND ALSO SUSTAINING THE 2 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS DISALLOWANCE MADE TOWARDS NON - GENUINE PURCHASES BY THE ASSESSING OFFICER ESTIMATING THE PROFIT ELEMENT @5% ON SUCH NON - GENUINE PURCHASES. 3. BRIEFLY STATED THE FACTS ARE THAT, THERE WAS A SEARCH AND SEI ZURE ACTION CARRIED BY THE DDIT (INV.) MUMBAI IN THE CASE OF SHRI GAUTAM JAIN AND OTHERS ON 03.10.2013 IN SURAT. DURING THE COURSE OF THE SEARCH IT WAS REVEALED THAT THE GROUP CONCERNS OF THE SHRI GAUTAM JAIN AND OTHERS WERE MERELY PROVIDING ACCOMMODATION ENTRIES THROUGH VARIOUS B ENAMI CONCERNS OPERATED AND MANAGED BY THEM. BASED ON THE SEARCH ACTION IN THE CASE OF SHRI GAUTAM JAIN, THE ASSESSMENTS OF THE ASSESSEE FOR ALL THESE ASSESSMENT YEARS WERE REOPENED AS THE ASSESSEE MADE PURCHASES FROM THE CONCERNS OPERATED BY SHRI GAUTAM JAIN AND OTHERS. IN THE REASONS RECORDED IT WAS MENTIONED THAT ASSESSEE WAS ONE OF THE BENEFICIARIES OF VARIOUS CONCERNS FROM WHICH ASSES SEE HAS MADE PURCHASES. IN THE COURSE OF THE REASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO ESTABLISH THE GENUINENESS OF THE PURCHASES, ASSESSEE HAS PROVIDED DETAILS AND HAS OBJECTED FOR REOPENING OF ASSESSMENT AND ON MERITS FURNISHED COPIES OF INV OICES, BANK STATEMENTS, STOCK REGISTERS, LEDGER CONFIRMATIONS, COPIES OF RETURNS FILED BY THE DEALERS. NOT CONVINCED WITH THE INFORMATION FURNISHED BY THE ASSESSEE , THE ASSESSING OFFICER BASED ON THE SEARCH AND THE STATEMENTS OF THE SHRI GAUTAM JAIN AND T HE 3 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS MODUS OPERAND I ADOPTED BY THE CONCERNS WHICH WERE OPERATED BY SHRI GAUTAM JAIN THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAS OBTAINED ONLY ACCOMMODATION ENTRIES AND THE GOOD S WERE PURCHASED ONLY IN THE GRAY MARKET. 4. THE ASSESSING OFFICER ALSO CON SIDERING THE REPORT OF TASK GROUP CONSTITUTED BY THE DEPARTMENT OF COMMERCE WHEREIN IT WAS ACCEPTED THAT THE MARGIN IN DIAMOND INDUSTRY RANGES BETWEEN 1 TO 4.5%, HE ESTIMATED THE PROFIT ELEMENT OF THE PURCHASES ON THE PURCHASES MADE IN THE GRAY MARKET WOUL D BE AT 5%, ACCORDINGLY THE ASSESSING OFFICER ADDED THE SAID PURCHASES TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) SUSTAINED THE ACTION OF THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT AND SUSTAINING THE ADDITION MADE TOWARDS NON - GENUINE PU RCHASES. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS RAISE D VARIOUS OBJECTION S IN RE OPENING THE ASSESSMENT AND ALSO ON MERITS. IN SO FAR AS THE RE - OPENING OF THE ASSESSMENT IS CONCERNED, THE COUNSEL SUBMITS THAT THE REASONS DO NOT CONVEY WHAT EXACT INFORM ATION RECEIVED BY THE ASSESSING OFFICER AND NOT KNOWN WHETHER SUCH ALLEGED INFORMATION HAD ANY VITAL LINK/NE XUS WITH FORMATION OF BELIEF. NO NAME OF THE ASSESSEE EVEN IN SUCH ALLEGED INFORMATION , T HERE IS NO INDEPENDENT APPLICATION OF MIND. THEREFORE, THE RE - ASSESSMENT PROCEEDINGS ARE BAD IN LAW. 4 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS 6. COMING TO THE MERITS OF THE CASE, IT IS SUBMITTED THAT FULL AND COMPLETE BOOKS ARE RECORDED, BOOKS AND RECORDS ARE MAINTAINED, BOOK RESULTS WERE ACCEPTED, CONFIRMATIONS FROM THE SUPPLIERS WERE FILED, BANK STAT EMENTS WERE FILED, PURCHASE INVOICES WITH CORRESPONDING SALES, STOCK REGISTERS, RETURNS OF THE DEALERS, THE PARTIES ARE VERY MUCH IN EXISTENCE STILL DOING THE BUSINESS, AFFIDAVIT OF SHRI GAUTAM JAIN RETRACTING HIS STATEMENTS, AND THEREFORE, ALL THESE EVIDENCES GOES TO SHOW THAT THE PURCHASES WERE GENUINE. THEREFORE, PLEADED THAT THE ADDITION BE DELETED. RELIANCE IS PLACED IN THE CASE OF VAMA INTERNATIONAL V. ITO, ITAT MUMBAI IN ITA.NO. 7315 TO 7317/MUM/2016 DATED 15.02.2018. 7. LD. DR VEHEMENTLY SUPPORT ED THE O RDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS FAR AS THE REOPENING OF ASSESSMENT IS CONCERNED, FOR ALL THESE ASSE SSMENT YEARS THERE WERE NO SCRUTINY ASSESSMENTS MADE U/S. 143(3 ) OF THE ACT BUT RETURNS WERE ONLY PROCESSED U/S. 143(1) OF THE ACT. THE ASSESSMENTS WERE REOPENED BASED ON THE SEARCH PROCEEDING IN THE CASE OF SHRI GAUTAM JAIN GROUP, WHEREIN THE ASSESSING OFFICER FOUND THAT SHRI GAUTAM JAIN THROUGH CERTAIN COMPANIES OP ERATED BY THEM WERE PROVIDING ONLY ACCOMMODATION ENTRIES TO VARIOUS PARTIES AND IT WAS FOUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF SUCH ACCOMMODATION 5 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS ENTRIES. THEREFORE, THE REASONS RECORDED SHOWS THAT THE DEALERS WERE IDENTIFIED; PURCHASES WERE IDENTIFIED AND BASED ON THESE THE ASSESSMENTS WERE REOPENED U/S. 148 OF THE ACT. 9. IN THE CASE OF CIT V. RAJESH JHAVERI STOCK BROKERS (P) LTD. [291 ITR 500] , THE HONBLE SUPREME COURT HELD THAT INTIMATION U/S 143(1)(A) IS NOT AN ASSESSMENT AND HELD VALID THE NOTICE ISSUED U/S 148. THEIR LORDSHIPS CLARIFIED THE MATTER AS UNDER: 17. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM 1 - 41989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 147( A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT H AS OCCURRED BY REASON OF EITHER (I) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASSESSIN G OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BE LIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS HOWEVER TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. IN THE CASE OF KONE ELEVATOR INDIA P. LTD. V. ITO 340 ITR 454 (MAD), CIT V. IDEAL GARDEN COMPLEX P. LTD. 340 ITR 609 (MAD), IT IS HELD THAT IN THE CASE OF RETURN OF INCOME PROCESSED U/S 143(1), THE ONLY CONDITION TO BE SATISFIED FOR REOPENING IS TAXABLE INCOME HAS ESCAPED ASSESSMENT AND THE ASSESSEES PLEA THAT NO FRESH MATERIAL BEFORE THE AO WARRANTI NG REOPENING, IS NOT RELEVANT. 6 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS IN VIEW OF THE ABOVE POSITION OF LAW, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE REOPE NING DONE BY THE AO BY ISSUING NOTICE U/S 148 OF THE ACT. THUS , GROUND NO.1 IS DISMISSED 10. COMING TO THE MERITS OF THE CASE, THE LD. CIT(A) CONSIDERING THE SUBMISSIONS, EVIDENCES FURNISHED BY THE ASSESSEE AND THE AVERMENTS OF THE ASSESSING OFFICER AND FOLLOW ING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH [356 ITR 451] HELD THAT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES SHOWN TO HAVE BEEN MADE FROM THE NON - EXISTING PARTIES ARE TO BE BROUGHT TO TAX, ACCORDINGLY LD.CIT(A) SUSTAINED THE ADDITION OF THE 5% ADOPTED BY THE ASSESSING OFFICER OBSERVING AS UNDER: - 6.2.14 . IN THE INSTANT CASE THE RATIO ADOPTED BY THE JUDICIAL PRONOUNCEMENT IN THE CASE OF CIT - 1 VS. SIMIT P. SHETH, ITA.NO. 553 OF 2012, ORDER DATED 16/01/2 013 IS MUCH RELEVANT. WHILE DECIDING T HE SIMILAR ISSUE, THE HON'BLE HIGH COURT OF GUJARAT HAS HELD THAT IN FAVOUR OF THE DEPARTMENT, THE SAME HAS TO BE TAKEN IN THE INSTANT CASE ALSO . THE ABOVE DECISION OF THE HONBLE HIGH COURT OF GUJARAT IS SQUARELY APP LICABLE TO THE FACTS OF THE INSTANT CASE. WHAT CAN BE DISALLOWED IN THE CASE OF ALLEGED NON GENUINE PURCHASES, AS HELD BY THE HON'BLE HIGH COURT OF GUJARAT IN THE ABOVE CITED CASE, IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES SHOWN TO HAVE BEEN MA DE FROM THE NON EXISTENT PARTIES. IN THE INSTANT CASE, GIVING DUE CONSIDERATION TO THE FACT THAT THE ASSESSEE HAS RECORDED PURCHASES AMOUNTING TO RS.45,73,364/ - IN THE BOOKS OF ACCOUNT, HENCE, THE PROFIT IS ESTIMATED AT A REASONABLE RATE ON THE NON - GENUINE PURCHASES AMOUNTING TO RS.45,73,364/ - . I AM OF THE CONSIDERED OPINION THAT, IT WOULD BE JUST AND FAIR, IF PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES IS TAKEN AS THE PROFIT EARNED FROM PURCHASES SHOWN TO HAVE BEEN MADE FROM THE NON - GENUINE PARTIES. IN THIS CASE, THE ASSESSEE HAS OBTAINED ACCOMMODATION ENTRIES OR NON - GENUINE PURCHASES TO THE TUNE OF RS.45,73,364/ - . THEREFORE, AN ADDITION ON A CCOUNT OF A HIGHER MARGIN OF PROFIT WOULD BE FAIR AND EQUITABLE, AND AO OPINED THAT SINCE GOODS WERE PURCHASED IN THE GREY DIAMOND MARKET WHICH YIELD HIGHER RETURNS MAINLY FOR TWO REASONS ONE, DIAMONDS IN THE GREY MARKET ARE ALWAYS CHEAPER THAN THE DIAMOND S SOURCED FROM THE GENUINE DEALER SECOND, THERE IS ALWAYS AN ELEMENT OF DISCOUNT IN THE CASE OF INSTANT CASH PURCHASE AND THEREFORE, IF THE GROSS PROFIT @ 5% IS TAKEN ON NON - GENUINE PURCHASES RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE OF RS.45,73,364 / - DURING THE YEAR UNDER CONSIDERATION AND THE PROFIT TO THAT EXTENT IS ADDED BACK TO THE INCOME OF THE A SSESSEE FOR THE YEAR UNDER CONSIDERATION. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS GUJARAT HIGH COURT DECISION IN THE CASE O F SIMIT P SHETH (2013) (356 ITR 451 (GUJ).) BEING THE POSSIBLE PROFIT OUT OF THE 7 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS PURCHASES MADE THROUGH NON - GENUINE PARTIES KNOWN AS TAINTED PURCHASES AND THEREBY, THE AO MADE AN ADDITION TO AN EXTENT OF RS.2,28,668/ - (5% OF RS.45,73,364/ - ) INSTEAD OF ADDI NG THE ENTIRE ALLEGED PURCHASES. 6.2.15 FURTHER THE COURTS HAVE T AKEN A VIEW THAT IN CASE OF NON - EXISTENT PARTIES FROM WHOM THE PURCHASES ARE SHOWN TO HAVE BEEN MADE, THE MOST LOGICAL APPROACH WOULD BE THAT ONLY PART OF SUCH PURCHASES CAN BE DISALLOWED, IN THE CASES WHERE THE CORRESPONDING SALES ARE TREATED AS GENUINE, OR ALTERNATIVELY THE PROFIT EMBE DDED IN SUCH SALES CAN ONLY BE BROUGHT TO TAX. THEREFORE, WHAT CAN BE TAXED IN SUCH TRANSACTIONS IS PROFIT ELEMENT EMBEDDED ON SUCH ALLEGED NON GENUINE PURCHASES AND THE ENTIRE OR PEAK AMOUNT OF SUCH PURCHASES CANNOT BE TREATED AS BOGUS. 6.2.16 IN THIS BAC K DROP OF ADDITION MADE BY THE AO AND ALSO VARIOUS SUBMISSION PLACED BY THE APPELLANT, 1 DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE AO AND THEREFORE THE ADDITION MADE BY THE AO IS UPHELD. ALL THE GROUNDS ARE ON THE ISSUE OF THIS ADDITION, TH EREFORE, ALL THE ABOVE GROUNDS ARE TREATED AS DISPOSED OFF AND DISMISSED. 11. WE AGREE WITH THE LD. CIT(A) THAT THE ONLY THE PROFIT ELEMENT SHOULD BE ASSESSED IN THE PURCHASES WHICH WERE MADE BY THE ASSESSEE IN THE GRAY MARKET. HOWEVER AS OBSERVED BY THE ASSESSING OFFICER, IT IS THE FACT THAT IN THE REPORT OF TASK GROUP CONSTITUTED BY THE DEPARTMENT OF COMMERCE THAT THE MARGIN IN DIAMOND INDUSTRY HAS TO BE ACCEPTED IN THE RANGE BETWEEN 1 TO 4.5%. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSEE HAS ALREADY SHOWN GROSS PROFIT @9.29% AS AGAINST THE INDUSTRY MARGIN RATE OF 3 TO 5%. THEREFORE, TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE ARE OF THE VIEW THAT THE PROFIT ELEMENT MARGIN EMBEDDED IN THESE TRANSACTION SHOULD BE TAKEN @3% OF THE PURCHASES MADE BY THE ASSESSEE IN ALL THESE ASSESSMENT YEARS. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT @3% AND RE - COMPUTE THE INCOME OF THE ASSESSEE FO R ALL THESE ASSESSMENT YEARS. 8 ITA NOS. 3781 TO 3785/MUM/2018 (A.YS: 2008 - 09 TO 2012 - 13) M/S VARNAM EXPORTS 12. IN THE RESULT, APPEALS OF TH E ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 08 TH MAY , 2019 SD/ - SD/ - (RAJESH KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 08/ 0 5 / 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