ITO, 20(2)(1), MUMBAI V. M/S J S JUBE TRADERS, MUMBAI

ITA 410/MUM/2023

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the Learned Commissioner of Income Tax (Appeals), which had reduced the disallowance of alleged bogus purchases from 100% to 12.5%. The assessee, M/s. J.S. Tube Traders, engaged in the trading of iron and steel, was accused of making non-genuine purchases amounting to INR 1,39,46,953. The Assessing Officer initially treated these purchases as non-genuine based on information from the DGIT(Inv.), Mumbai, regarding accommodation entries. The CIT(A) reduced the disallowance after considering the assessee's submissions, which were not fully accepted by the Tribunal. The Tribunal found that while the sales from these purchases were accepted as genuine, the entire purchases could not be treated as non-genuine and thus estimated a profit element of 5% from these purchases.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123533 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 19-04-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2023
• Other Referred Cases: N.K. Proteins Ltd., Bholanath Polyfab Pvt. Ltd, CIT v. Simit P. Seth, CIT v. Nikunj Eximp
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Accommodation entries; Reassessment proceedings
• Section: 147; 133(6); 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS KAVITHA RAJAGOPAL, HON'BLE JUDICIAL MEMBER AND ITA NO. 410/MUM/2023 (A.Y: 2011-12) Income Tax Officer-20(2)(1) Room No. 216, 2 nd Floor Piramal Chambers, Lalbaug Parel, Mumbai- 400012 v. M/s. J.S Tube Traders 337, Signal Hill Opp Vihar Hotel, Avenue Road Darukhana, Mumbai- 400010 PAN: AAAFJ2901K (Appellant) (Respondent) C.O. No. 32/MUM/2023 [ARISING OUT OF ITA NO. 410/MUM/2023 (A.Y: 2011-12)] M/s. J.S. Tube Traders 337 Signal Hill Opp Vihar Hotel, Avenue Road Mumbai- 400010 PAN: AAAFJ2901K v. Income Tax Officer-20(2)(1) Room No. 216, 2 nd Floor Piramal Chambers, Lalbaug Mumbai- 400012 (Appellant) (Respondent) Assessee Represented by : Shri Vimal Punamiya Department Represented by : Vranda U Matkari Date of Conclusion of Hearing : 20.04.2023 Date of Pronouncement : 12.07.2023 ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 2 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal and cross objection are filed by the revenue and assessee respectively, against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 19.12.202022 for the A.Y. 2011-12 in confirming the addition of ₹.17,43,369 being 12.5% of the alleged purchases of ₹.1,39,46,953/- as against 100% disallowance made by the Assessing Officer. 2. Brief facts of the case are, assessee a firm engaged in the business of trading of iron and steel and filed return of income on 15.09.2011 declaring total income of ₹.3,52,897/- for the A.Y.2011-12, and the return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, Assessing Officer received information from the DGIT(Inv.,), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened u/s. 147 of the Act based on the information received from DGIT (Inv.,), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 3 providing accommodation entries without there being transportation of any goods. The case was reopened u/s. 147 of the Act by issue of notice u/s.148 of the Act after recording the reasons. Notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for. 3. During the course of reassessment proceedings, the assessee was asked to prove the genuineness of the purchases made from various dealers as referred at Page No. 2 of the Assessment Order. In response, assessee filed its submissions and submitted that purchases made are genuine and the payments were through banking channel to the parties against the purchases. After considering the submissions of the assessee, Assessing Officer rejected the submissions of the assessee and he treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. It is the finding of the Assessing Officer that assessee failed to produce the parties and as such the parties remained unverifiable. Further, Assessing Officer observed that the notices issued u/s. 133(6) of the Act to the parties are returned unserved with a remark ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 4 “unserved/unclaimed” and the assessee has not produced the parties before the Assessing Officer. Therefore, Assessing Officer treated entire alleged purchases of ₹.1,39,46,953/- as non-genuine and added to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions before the Ld.CIT(A). After considering the submissions of the assessee, Ld.CIT(A) restricted the disallowance to the extent of 12.5% of the alleged bogus purchases. Aggrieved, both revenue and assessee are in appeal before us. 5. Revenue has raised following grounds in its appeal: - "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition made on account of bogus purchase @ 100% of total bogus purchase ignoring the fact that the Sales Tax Department has proved beyond doubt that the parties declared as hawala traders were involved in providing accommodation entry of purchases and the assessee was one of the beneficiary of accepting accommodation entry for the purchase." 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the assessee failed to produce the parties for verification, in spite of opportunity provided by the Assessing Officer. 3. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was correct in deleting the addition made by the Assessing Officer amounting to Rs.1,39,46,953/- without ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 5 appreciating the ratio of the decision of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd., wherein the Court has held that when the purchases are from bogus suppliers, the entire purchases are liable to be disallowed?". 4. "Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in appreciating the fact that the mere payment through banking channels will not be sacrosanct since neither notices were served on the parties and also the assessee failed to produce the parties for verification". 5. This appeal is being filed as it is covered under the exception provided in para 10(e) of the CBDT's Circular No.3 of 2018 dated 11.07.2018 as amended vide F.No.279/Misc.142/2007-ITJ(Pt) dated 20.08.2018. 6. The appellant prays that the order of the National Faceless Appeal Centre (NFAC), Delhi on the above grounds be reversed and that of the Assessing Officer be restored. 7. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 6. In the cross objection, assessee has raised following grounds of appeal: - “1. The Ld. Commissioner of Income-tax (Appeals) erred in confirming the addition of ₹.17,43,369/- being 12.5% of the disputed purchases of ₹.1,39,46,953/-. 2. The Respondent Craves leave to add to, amend and / or alter all or any of the above cross- objections.’ 7. At the time of hearing, Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Ld. Counsel for the assessee submitted that the assessee is in the business of Iron and steel and the ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 6 addition made by the Ld.CIT(A) is on higher side, thus prayed to reduce the same. 8. On the other hand, Ld. DR supported the order of the Assessing Officer. 9. Considered the rival submissions and material placed on record and perused the orders of the authorities below. It is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. We agree with the view of the lower authorities that there should be an estimation of profit element from these purchases and should be estimated reasonably ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 7 as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e. trader in Iron and Steel Metals, it would be justified if the profit element embedded in those purchases are estimated at 5%. Accordingly, we direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 5% for the A.Y. 2011-12 and restrict the disallowance of purchases to 5% and compute the income accordingly. Accordingly, grounds raised by the revenue are dismissed and ground raised by the assessee is partly allowed. 10. In the result, appeal filed by the Revenue is dismissed and cross objection filed by the assessee is partly allowed. Order pronounced in the open court on 12 th July, 2023. Sd/- Sd/- (KAVITHA RAJAGOPAL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12/07/2023 Giridhar, Sr.PS ITA NO. 410/MUM/2023 (A.Y: 2011-12) C.O. No. 32/MUM/2023 M/s. J.S. Tube Traders Page No. | 8 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum