NILESH S. DOSHI, MUMBAI V. ITO-19(2)(4), MUMBAI

ITA 3928/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3440 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA
• Keywords: Bogus purchase; Rejection of books of accounts; Principle of natural justice
• Section: 143(3); 133(6)

Judgement Text

P A G E | 1 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.3928/MUM/2018 (ASSESSMENT YEAR: 2007 - 08 ) NILESH S. DOSHI 902 - C, GUNDECHA GARDENS, DATTATAM KHAMKAR MARG, LALBAUG, MUMBAI 400012 VS. ITO - 19(2)(4) MATRU MANDIR, MUMBAI. PAN AABPD1395E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUCHEK ANCHALIYA , A.R RESPONDENT BY: SHRI CHAITNYA ANJARIA, D.R DATE OF HEARING: 24 .04.2019 DATE OF PRONOUNCEMENT: 0 3 .0 5 .2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 2, MUMBAI, DATED 01.02.2018, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC.143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT I.T ACT), DAT ED 05.03.2015. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUND S OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN NOT HOLDING THE ASSUMPTION OF JURISDICTION BY THE LEA RNED ASSESSING OFFICER AS BAD IN LAW AS THE CONDITIONS LAID DOWN UNDER THE ACT FOR INITIATING REASSESSMENT PROCEEDING U/S 147 OF THE ACT WERE NOT FULFILLED. 2. THE L EARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 147 OF THE ACT WAS BAD IN LAW AND WAS ALSO IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION MADE BY THE LD. A.O OF RS. 9,81,657/ - BEING 12.5 % OF THE PURCHASES OF RS. 78,53,253/ - BY TREATING GENUINE PURCHASES AS NON GENUINE PURCHASES. P A G E | 2 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) 4. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, ALTER OR DELETE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE ASSESSEE WHO IS ENGAGED IN THE BUSINES S OF TRADING IN FERROUS AND NON - FERROUS METALS HAD FILED HIS RETURN OF INCOME FOR A.Y.2007 - 08 ON 22.10.2007, DECLARING TOTAL INCOME OF RS.3,03,590/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSE D AS SUCH UNDER SEC.143(1) OF THE I.T ACT. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED BY THE A .O FROM THE DGIT (INV.), MUMBAI, THAT AS PER THE INFORMATION UNEARTHED ON THE BASIS OF INVESTIGATIONS CARRIED OUT BY THE SALES TAX DE PARTMENT, MAHARASHTRA, THE NAME OF THE ASSESSEE HAD FIGURED IN THE LIST OF THE BENEFICIARIES WHO HAD OBTAINED BOGUS BILLS FROM CERTAIN HAWALA PARTIES , THE CASE OF THE ASSESSEE WAS REOPENED UNDER SEC.147 OF THE I.T ACT. 3. DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES AGGREGATING TO RS.78,53,253/ - FROM THE FOLLOW ING TWO PARTIES: SR. NO. NAME OF THE HAWALA PARTIES AMOUNT 1. TEJ CORPORATION 26,96,195/ - 2. HARI OM TRADERS 51,57,058/ - TOTAL 78,53,253/ - THE A.O IN ORDER TO VERIFY THE GENUINENESS AND VERACITY OF THE AFORESAID PURCHASE TRANSACTIONS DIRECTED THE ASSESSEE TO PLACE ON RECORD DOCUMENTARY EVIDENCE SUPPORTING THE AUTHENTICITY OF THE SAID PURCHASE TRANSACTION S VI Z. (I) COMPLETE ADDRESSES OF THE SUPPLIER PARTIES; (II) PURCHASE BILLS; (III) INVOICES/BILLS; (IV) COPIES OF LEDGER ACCOUNTS OF THE PARTIES; (V) DET AILS OF TRANSPORTATION OF GOODS I.E LO RRY RECEIPTS ETC; (VI) DOCUMENTA RY EVIDENCE CORROBORATING RECEI PT OF G OODS IN THE PREMISES OF THE ASSESSEE; (VII) DOCUMENTARY EVIDENCE SUBSTANTIATING CONSUMPTION OF GOODS; AND (VIII) DETAILS OF PAYMENTS MADE TO THE AFOREMENTIONED PARTIES. IN REPLY, THE ASSESSEE FURNISHED THE ADDRESSES OF THE ABOVEMENTIONED PARTIES IN ORDER T O FORTIFY HIS P A G E | 3 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) CLAIM THAT GENUINE PURCHASES OF MATERIAL WAS MADE BY HIM FROM THE AFOREMENTIONED PARTIES . T HE AO ISSUED NOTICES UNDER SEC. 133(6) TO THE AFORESAID PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE BY REGISTERED POST , WHICH HOWEVER WERE RETURNED BACK UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARKS NOT KNOWN , NO SUCH ADDRESS OR LEFT ETC. IN THE BACKDROP OF THE AFORESAID FACTS, THE A.O DIRECTED THE ASSESSE E TO PLACE ON RECORD DOCUMENTS SUPPORTING THE AUTHENTICI TY OF THE AFORESAID PURCHASE TRANSACTIONS , AND ALSO TO PRODUCE THE PARTIES BEFORE HIM FOR NECESSARY VERIFICATION. IN COMPLIA NCE , THE ASSESSEE FILED WITH A.O CERTAIN DOCUMENTS VIZ. (I) COPIES OF LEDGER ACCOUNTS OF THE PARTIES ; (II) COPIES OF INVOICES OF THE AFOREMENTIONED PARTIES; (III) COPIES OF BANK STATEMENTS REFLECTING PAYMENTS MADE TO THE AFORESAID PARTIES THROUGH PROPER BANKING CHANNELS BY ISSUING ACCOUNT PAYEE CHEQUE S ; (IV) CHART SHOWING THE DETAILS OF PURCHASES MADE FROM THE AFOREMENTIONED PARTIES; A ND (V) DETAILS IN RESPECT OF THE PURCHASES MADE FROM THE PARTIES AND THEIR CORRESPONDING SALES . H OWEVER, THE A.O NOT FINDING FAVOUR WITH THE DOCUMENTS PRODUCED BY THE ASSESSEE DECLINED TO ACCEPT HIS CLAIM THAT HE HAD MADE GENUINE PURCHASES FROM THE AFOREMENTIONED PARTIES. ON THE BASIS OF HIS AFORESAID DELIBERATIONS THE A.O REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SEC.145(3). THE A.O HELD A CONVICTION THAT THE ASSESSEE HAD INDULGED IN BOOKING OF PURCHASES ON THE BAS IS OF BILLS OBTAINED FROM THE AFOREMENTIONED BOGUS PARTIES WITH AN INTENT TO SUPPRESS IT S TRUE PROFITS AND REDUCE ITS TAX LIABILITY. IN THE BACKDROP OF THE AFORESAID FACTS , THE A.O BEING OF THE VIEW THAT THE ASSESSEE BY INDULGING IN THE AFORESAID PURCHAS E TRANSACTIONS WOULD HAVE BENEFITTED BY PROCURING THE GOODS AT A DISCOUNTED VALUE, THUS MADE AN ADDITION OF RS.9,81,657/ - I.E @ 12.5% OF THE AGGREGATE VALUE OF THE PURCHASES OF RS.78,53,253/ - WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AF OREMENTIONED PARTIES. P A G E | 4 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE FACTS OF THE CASE WAS HOWEVER NOT PERSUADED TO SUBSCRIBE TO THE CONTENTION S ADVANCED BY THE ASSESSEE AND DISMISS ED THE APP EAL. 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE TOOK US THROUGH THE FACTS OF THE CASE. IT WAS SUBMITTED BY THE LD. A.R THAT K EEPING IN VIEW THE FACT THAT THE OVERALL G.P. RATE OF THE ASSESSEE DURING THE YEAR WAS 2.57%, THEREFORE, THE LOWER AUTHORITIES HAD ERRED IN MAKING AN EXORBITANT ADDITION/DISALLOWANCE @ 12.5% OF THE AGGREGATE VALUE OF PURCHASES MADE BY THE ASSESSEE FROM THE AFOREMENTIONED PARTIES. IN ORDER TO BUTTRESS HIS AFORESAID CONTENTION THAT NO ADDITION/DISALLOWANCE WAS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE , THE LD. A.R PLACED ON RECORD A C HART REFLECT ING THE BIFURCATED DETAILS OF ITS TOTAL TURNOVER VIZ. (I) TURNOVER CORRESPONDING TO THE ALLEGED BOGUS PURCHASES; AND (II) TURNOVER CORRESPONDING TO THE GENUINE PURCHASE S . THE LD. A.R DRAWING SUPPORT FROM THE AFORESAID C HART SUBMITTED THAT THE OVERALL G.P. RATE OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATIO N WORKED OUT AT 2.57%. IT WAS FURTHER AVERRED BY HIM THAT AS WAS DISCERNIBLE FROM THE DETAILS PROVIDED IN THE C HART, AS ITS G.P. RATE INSOFAR THE ALLEGED BOGUS PURCHASES WERE CONCERNED, WAS SUBSTANTIALLY HIGH AS IN COMPARISON TO THE G.P. RATE PERTAININ G TO ITS GENUINE PURCHASES, THEREFORE, NO FURTHER ADDITION/DISALLOWANCE IN CONTEXT OF SUCH ALLEGED BOGUS PURCHASES WAS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. IN THE BACKDROP OF THE AFORESAID FACTS , IT WAS AVERRED BY THE LD. A.R THAT THE EXORBITANT ADDITION S /DISALLOWANCES @ 12.5% OF THE AGGREGATE VALUE OF THE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES WAS UNJUSTIFIED AND LIABLE TO BE VACATED. ALTERNATIVELY, IT WAS SUBMITTED BY HIM THAT IN P A G E | 5 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) ALL FAIRNESS THE ADD ITION TOWARDS THE PROFIT EMBEDDED IN THE PURCHASES MADE BY THE ASSESSEE FROM THE AFOREMENTIONED PARTIES MAY BE RESTRICTED TO THE EXTENT OF 4% OF THE AGGREGATE VALUE OF SUCH PURCHASES. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) REL IED ON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION, THEREFORE, THE CIT(A) HAD RIGHTLY SUSTAINED THE ADDITION MADE BY THE A.O TO THE EXTENT OF 12.5% OF THE AGGREGATE VALUE OF PURCHASES WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. 7. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR THE BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AS WELL AS THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THEM. ADMITTEDLY, AS IS DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES, THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS CAST UPON HIM AS REGARD S PROVING THE AUTHENTICITY OF THE PURCHASES AGGREGATING TO RS.78,53,253/ - WHICH WERE CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED TWO PARTIES VIZ. (I) TEJ CORPORATION (RS.26,96,195/ - ); AND (II) HARIOM TRADERS (RS.51,57,058/ - ). AS OBSERVED HEREINABOVE, THE NOTICES WHICH WERE ISSUED BY THE A.O UNDER SEC. 133(6) TO THE AFOREMENTIONED PARTIES IN ORDER TO VERIFY THE GENUINENESS OF THE PURCHASE TRANSACTION S WERE RETURNED BACK WIT H THE ENDORSEMENT NOT KNOWN, NO SUCH ADDRESS OR LEFT ETC. FURTHER, THE ASS ESSEE ALSO COULD NOT SUBSTANTIATE THE GENUINENESS OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES ON THE BASIS OF I RREFUTABLE DOCUMENTARY EVIDENCE , TO THE SATISFACTION OF THE A.O . APART THERE FROM, THE ASSESSEE DESPITE SPECIFIC D IRECTIONS BY THE A.O ALSO FAILED TO P A G E | 6 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) PRODUCE THE AFOREMENTIONED PARTIES FOR NECESSARY VERIFICATION BEFORE THE A.O . INSOFAR THE OBSERVATION S OF THE LOWER AUTHORITIES THAT THE ASSESSEE COULD NOT PROVE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION IS CONCERNED, WE ARE OF THE CONSIDERED VIEW THAT THOUGH THE ASSESSEE IN ORDER TO BUTTRESS HIS CLAIM THAT HE HAD MADE GENUINE PURCH ASES FROM THE AFOREMENTIONED PARTIES HAD TO SOME EXTENT PRODUCED DOCUMENTARY EVIDENCE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, HOWEVER, HE HAD FAILED TO CONCLUSIVELY PROVE THE AUTHENTICITY OF THE PURCHASE TRANSACTION S TO THE SATISFACTION OF THE A.O . IN THE TOTALITY OF THE FACTS INVOLVED IN THE CASE BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT AS THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS OF HIS CLAIM OF HAVING MADE PURCHASES FROM THE AFORESAID PARTIES, THEREFORE, IT CAN SAFELY BE PRESUME D THAT HE HAD PURCHASE D THE GOODS UNDER CONSIDERATION NOT FROM TH E AFOREMENTIONED HAWALA PARTIES, BUT FROM THE OPEN/GREY MARKET. WE ARE PERSUADED TO SUBSCRIBE TO THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE ASSESSEE BY MAKING THE PURCHASES OF THE GOO DS UNDER CONSIDERATION FROM THE OPEN/GREY MARKET AT A DISCOUNTED VALUE WOULD HAVE BEEN MONETARILY BENEFITTED BY DOING SO. INSOFAR THE QUANTIFICATION OF THE PROFIT EMBEDDED IN MAKING OF SUCH PURCHASES FROM THE OPEN/GREY MARKET IS CONCERNED, WE ARE OF THE CO NSIDERED VIEW THAT THE ASSESSEE BY CARRYING OUT THE PURCHASES FROM THE UNREGULATED SECTOR IN THE OPEN/GREY MARKET WOULD HAVE SAVED ON VAT ETC. AS IS DISCERNIBLE FROM A PERUSAL OF THE COPIES OF THE PURCHASE BILLS FILED BY THE ASSESSEE BEFORE US, WE FIND THAT THE VAT RATE OF 4% WAS APPLICA BLE IN RESPECT OF THE GOODS THAT WERE TRADED BY THE ASSESSEE . WE THUS ARE OF THE CONSIDERED VIEW, THAT THE ADDITION IN THE HANDS OF THE ASSESSEE CAN SAFELY BE RES TRICTED TO THE EXTENT OF 4% OF THE AGGREGATE VALUE OF PURCHASES WHICH ARE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. WE THUS IN TERMS OF OUR AFORESAID P A G E | 7 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4) OBSERVATIONS RESTRICT THE ADDITION IN THE HANDS OF THE ASSESSEE TO THE EX TENT OF 4% OF THE AGGREGATE VALUE OF PURCHASES AGGREGATING TO RS.78,53,253/ - AND RESULTANTLY SUS TAIN THE ADDITION TO THE EXTENT OF RS.3,14,130/ - . THE ORDER OF THE CIT(A) IS MODIFIED IN TERMS OF OUR AFORESAID OBSERVATIONS. 8. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN COURT ON 0 3 . 0 5 .2019 S D / - S D / - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 03 .0 5 .2019 PS. ROHIT / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 8 ITA NO.3928/MUM/2018 A.Y. 2007 - 08 NILESH S. DOSHI VS. ITO - 19(2)(4)