MINAWALA GEMS & JEWELS PRIVATE LIMITED, MUMBAI V. ITO WARD-5(2)(3), MUMBAI

ITA 4017/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5893 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIYA
• Keywords: Bogus purchase; Unexplained expenditure
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NOS. 4017 TO 4024/MUM/2018 (ASSESSMENT YEARS: 2007-08 TO 2014-15) M/S. MINAWALA GEMS & JEWELS P. LTD. 95, HEERA PANNA SHOPPING CENTRE, HAJI ALI, MUMBAI 400026 VS. INCOME TAX OFFICER - 5(2)(3) ROOM NO. 566, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AABCM5085D APPELLANT RESPONDENT APPELLANT BY: MS. DINKLE HARIYA RESPONDENT BY: MS. CHAITANYA ANJARIYA DATE OF HEARING: 11.06.2019 DATE OF PRONOUNCEMENT: 08.08.2019 O R D E R PER SHAMIM YAHYA, AM THESE ARE APPEALS BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 3 P ERCENT DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES FOR THE RESPECTIVE ASSES SMENT YEARS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF JEWELLERIE S. INFORMATION WAS RECEIVED FROM THE INVESTIGATION WING THAT ASSESSEE HAS INDULGED IN BOGUS PURCHASES. THE ASSESSMENT WAS ACCORDINGLY REOPENED. THE AO IN THIS CASE MADE 25.5 PERCENT DISALLOWANCE FOR A.Y. 2007-08 AND 12.5 PERCENT DISALLOWANCE FOR OTHER ASSESSMENT YEARS ON ACCOUNT OF BOGUS PURCHASES. UPON ASSESSEES APPEAL THE LEARNED CIT(A) CONFIRMED THE SAME TO THE EXTENT OF 8 PERCENT OF THE BOGUS PURCHASES. THE DET AILS OF DISALLOWANCES ARE UNDER: - ITA NOS. 4017 TO 4024/MUM/2018 M/S. MINAWALA GEMS & JEWELS P. LTD 2 SR. NO. DISALLOWANCE A.Y. 07-08 A.Y. 08-09 A.Y. 09-10 A.Y. 10-11 A.Y. 11-12 A.Y. 12-13 A.Y. 13-14 A.Y. 14-15 1 UNEXPLAINED EXPENDITURE U/S 69C 4,35,149/- (AO 25.50% OF ALLEGED BOGUS PURCHASES) 1,36,517/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 87,500/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 56,000/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 1,17,818/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 75,403/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 2,59,170/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 1,65,869/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 13,39,217/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 8,57,099/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 20,75,664/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 1328425/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 6,36,630/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 4,07,443/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) 4,71,676/- (AO 12.50% OF ALLEGED BOGUS PURCHASES) 3,01,872/- (CIT(A) 8% OF ALLEGED BOGUS PURCHASES ) AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BEFOR E THE ITAT. 3. I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE REC ORDS. 4. UPON A CAREFUL CONSIDERATION I FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFE RENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. NO OTHER DEFECT IS POINTED OUT IN OTHER ASPECTS OF WORKING. I FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PUR CHASE CANNOT BE DONE, THE RATIONALE BEING NO SALES IS POSSIBLE WITH OUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO. 2860 ORDER DATED 18.06.2014). IN THIS CASE THE HON' BLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER, IN THAT CASE A LL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASES FROM GREY MARKET. MAKIN G PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSEE SAVINGS ON ACCOUNT OF NON- PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXC HEQUER. IN SUCH SITUATION IN MY CONSIDERED OPINION, ON THE FACTS AN D CIRCUMSTANCES OF THE CASE THE 12.5 PERCENT DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEVER, IN THIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE HAS PRAYED THAT WHEN ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFERED TO TAX SHOULD BE REDUCE D FROM THE STANDARD ITA NOS. 4017 TO 4024/MUM/2018 M/S. MINAWALA GEMS & JEWELS P. LTD 3 12.5 PERCENT BEING DIRECTED TO BE DISALLOWED ON ACC OUNT OF BOGUS PURCHASE. 5. UPON A CAREFUL CONSIDERATION I FIND CONSIDERABLE CO GENCY IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, AS OTHERWISE IT WILL BE DOUBLE JEOPARDY TO THE ASSESSEE. ACCORDINGLY I MODI FY THE ORDER OF THE LEARNED CIT(A) AND DIRECT THAT THE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 PERCENT OF THE BOGUS PURCHASES AS REDUCED BY T HE GROSS PROFIT RATE ALREADY DECLARED BY THE ASSESSEE ON THESE TRANSACTI ONS. LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTED THIS PROPOSITION. 6. ONE MORE ISSUE RAISED FOR ASSESSMENT YEARS 2013-14 AND 2014-15 IS THE ADHOC DISALLOWANCE OF ` 4,00,000/- AND ` 1,50,000/- OUT OF THE EXPENSES BY A CRYPTIC REMARK BY THE ASSESSING OFFIC ER THAT SOME EXPENSES ARE IN CASH AND ARE BY SELF MADE VOUCHERS. THE ADDI TION HAS FURTHER BEEN UPHELD BY THE LEARNED CIT(A) BY A FURTHER CRYPTIC R EMARK THAT NO ARGUMENT HAS BEEN ADVANCED IN THIS REGARD, DESPITE THE FACT THAT ASSESSEE HAS DULY RAISED A GROUND AND REFERRED THE MATTER IN THE STAT EMENT OF FACTS. 7. UPON CAREFUL CONSIDERATION I AM OF THE OPINION THAT THE DISALLOWANCE IS BASED ON SURMISE AND CONJECTURE WITHOUT ANY COGE NT BASIS. IT IS SETTLED LAW THAT ADDITION BASED UPON SURMISE AND CONJECTURE WITHOUT ANY COGENT MATERIAL CANNOT BE SUSTAINED. ACCORDINGLY I SET ASI DE THE ORDERS OF AUTHORITIES BELOW AND DIRECT THAT THE ADDITION IN T HIS REGARD SHOULD BE DELETED. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH AUGUST, 2019. SD/ - (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED: 8 TH AUGUST, 2019 ITA NOS. 4017 TO 4024/MUM/2018 M/S. MINAWALA GEMS & JEWELS P. LTD 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -10, MUMBAI 4. THE PR.CIT - 5, MUMBAI 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.