MR. VIRMABHAI A PATEL, MUMBAI V. INCOME TAX OFFICER-19(3)(5), MUMBAI

ITA 4121/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4114 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA
• Keywords: Bogus purchase; Rejection of books of accounts; Question of law; Set aside
• Section: 143(1)

Judgement Text

P A G E | 1 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.4121/MUM/2018 (ASSESSMENT YEAR: 2009 - 10 ) MR. VIRMABHAI A. PATEL 159/6, MISTRY BUILDING, 2 ND KUMBHARWADA LANE, MUMBAI 400004 VS. THE INCOME TAX OFFICER 19(3)(5) , 2 ND FLOOR, MATRU MANDIR, TARDEV ROAD, MUMBAI 400 007 PAN AGKPP3389B (APPELLANT) (RESPONDENT) APPELLANT BY: NONE RESPONDENT BY: SHRI CHAITNYA ANJARIA, D.R DATE OF HEARING: 01 .05 .2019 DATE OF PRONOUNCEMENT: 08 .05.2019 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) - 30, MUMBAI, DATED 21.03.2018 , 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), DATED 23.02.2015. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HA S RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN MAKING DISALLOWANCE OF NON GENUINE PURCHASE CLAI M S OF RS.15,47,800/ - ON THE BASIS OF G.P RATIO @ 12.5% ON PURCHASE (RS.1,23,82,428/ - ) UNDER THE INCOME TAX ACT 1961, WITHOU T CONSIDERING THE FACTS OF THE CASE. 2. THE APPELLANT CRAVES, LEAVES TO ADD, ALTERS, AMENDS OR DELETES ANY GROUNDS OF APPEAL AT THE TIME OF HEARI NG. P A G E | 2 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) 2. BRIEFLY STATED, THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN FERROUS AND NON - FERROUS METALS UNDER THE NAME AND STYLE OF VIJESH METAL (INDIA) HAD FILED HIS RETURN OF INCOME FOR A.Y. 2009 - 10 ON 26.09.2009, DECLARING TOTAL INCOME AT RS.2,79,090/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF T HE I - T ACT. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT (INV.) WING, MUMBAI , THAT THE NAME OF THE ASSESSEE HAD FIGURED IN THE LIST OF THE BENEFICIARIES WHO HAD PROCURED BOGUS BILLS FROM CERTAIN HAWALA PARTIES, HIS CASE WAS REOPENED UND ER SEC.147 OF THE I.T ACT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES AGGREGATING TO RS.1,23,82 ,428/ - FROM THE FOLLOWING TAINTED PARTIES: SR. NO. NAME OF THE HAWALA P ARTIES FIN. YEAR AMOUNT (RS.) 1. SANDOZ STEEL 2008 - 09 1464698 2. KONICA TUBES INDS 2008 - 09 2972922 3. RAJESHWARI METAL INDS 2008 - 09 1595402 4. MAHADEV METALS INDS 2008 - 09 1165787 5. PAKSHAL TRADE LINKS P. LTD. 2008 - 09 671226 6. MAHADEV STEEL CENTRE 2008 - 09 592769 7. MONAL METAL ALLOYS P. LTD. 2008 - 09 443326 8. KANAK METAL CORPN 2008 - 09 131914 9. JINDAL METAL CORPN 2008 - 09 47825 10. MANISH INDUSTRIAL CORPN 2008 - 09 855041 11. DHANERA METAL CORPN 2008 - 09 2441518 TOTAL 12382428 IN ORDER TO VERIFY THE GENUINENESS AND VERACITY OF THE AFORESAID PURCHASE TRANSACTIONS , THE ASSESSEE WAS DIRECTED BY THE A.O TO FURNISH THE CORRECT AND COMPLETE ADDRESSES OF THE AFOREMENTIONED PARTIES , PURCHASE BILLS, COPIES OF THEIR LEDGER ACCOUNTS, DETAILS OF TRANSPORTATION OF GOODS I.E LORRY RECEIPTS, DOCUMENTARY EVIDENCE REFLECTING THE RELEVANT ENTRIES OF HAVING RECEIVED SUCH GOODS FROM THE AFOREMENTIONED PARTIES , ALONGWITH THE DETAILS OF PAYMENTS MADE TO P A G E | 3 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) THEM. ON THE BASIS OF THE ADDRESSES OF THE AFOREME NTIONED PARTIES MADE AVAILABLE BY THE ASSESSEE THE A.O ISSUED NOTICE S UNDER SEC.133(6) BY REGISTERED POST TO THEM, WHICH HOWEVER WERE RE TURNED BANK UNSERVED BY POSTAL AUTHORITIES WITH THE REMARKS NOT KNOWN, NO SUCH ADDRESS OR LEFT ETC. THE A.O BROUGH T THE AFORESAID FACT S TO THE NOTICE OF THE ASSESSEE AND DIRECTED HIM TO SUBSTANTIATE THE AUTHENTICITY OF THE AFOREMENTIONED PURCHASE TRANSACTIONS ON THE BASIS OF SUPPORTING DOCUMENTARY EVIDENCE AND ALSO TO PRODUC E THE SAID PARTIES FOR NECESSARY EXAMINATION BEFORE HIM. HOWEVER, THE ASSESSEE PARTLY COMPLIED WITH THE AFORESAID DIRECTIONS OF THE A.O AND FURNISHED ONLY SOME DETAILS TO SUPPORT THE GENUINENESS OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION VIZ. (I) COPIES OF LEDGER ACCOUNTS OF THE PARTIES ; (II) COPIES OF PURCHASE INVOICES OF THE SPECIFIED PARTIES; (III) COPIES OF BANK STATEMENTS EVIDENCING PAYMENTS MADE THROUGH PROPER BANKING CHANNELS TO THE AFOREMENTIONED PARTIES; AND (IV) DETAILS OF PURCHASES MADE FROM THE SAID PARTIES ALONG WITH THE DET AILS OF THE CORRESPONDING SALES . HOWEVER , THE A.O BEING OF THE VIEW THAT THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE PURCHASES CLAIMED BY HIM TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES ON THE BASIS OF IRREFUTABLE DOCU MENTARY EVIDENCE, THUS DECLINED TO ACCEPT THE SAME. IN THE BACKDROP OF THE AFORESAID FACTS, THE A.O OBSERVING THAT THE PURCHASE TRANSACTION S UNDER CONSIDERATION HAD RE M A IN ED UNVERIFIED, THUS REJECTED THE BOOKS OF ACCOUNTS UNDER SEC.145(3) OF THE I - T ACT. O N THE BASIS OF HIS AFORESAID OBSERVATIONS , IT WAS CONCLUDED BY THE A.O THAT THE ASSESSEE HAD PURCHASE D THE GOODS FROM THE OPEN/GREY MARKET AND HAD ONLY PROCURED BOGUS PURCHASE BILLS FROM THE AFOREMENTIONED PARTIES . IN THE BACKDROP OF HIS AFORESAID DELIBERA TIONS, THE A.O MADE AN ADDITION OF RS.15,47,800/ - I.E @ 12.5% OF THE AGGREGATE VALUE OF P URCHASES OF P A G E | 4 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) RS.1,23,82,428/ - WHICH WERE CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE CIT(A). HOWEVER, THE CIT(A) NOT FINDING FAVOUR WITH THE CONTENTION S ADVANCED BY THE ASSESSEE , DISMISS ED THE APPEAL. 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER PASSED BY THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. WE FIND THAT DESPITE THE FACT THAT THE ASSESSEE WAS PUT TO NOTICE AS REGARDS THE DATE OF HEARING OF THE APPEAL , HOWEVER HAS FAILED TO PUT UP AN APPEARANCE BEFORE US. IN THE BACKDROP OF THE AFORESAID FACTS, WE ARE CONSTRAINED TO PROCEED WITH AS PER RULE 24 OF THE APPELL ATE TRIBUNAL RULES, 1962 AND THEREIN DISPOSE OFF THE APPEAL AFTER HEARING THE RESPONDENT REVENUE AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES. 6. ADMITTEDLY, THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS UNDER C ONSIDERATION. WE FIND THAT THE ASSESSEE HAD FAILED TO PLACE ON RECORD ANY CLINCHING DOCUMENTARY EVIDENCE WHICH WOULD HAVE IRREFUTABLY SUBSTANTIATED THE GENUINENESS AND VERACITY OF THE PURCHASES WHICH WERE CLAIMED BY HIM TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. APART THERE FROM, DESPITE THE SPECIFIC DIRECTIONS BY THE A.O, THE ASSESSEE HAD ALSO FAILED TO PRODUCE THE AFOREMENTIONED PARTIES F OR NECESSARY EXAMINATION BEFORE HIM . FURTHER, THE NOTICES ISSUED BY THE A.O TO THE AFOREMENTIONED PARTIES UNDER SEC.133(6) AT THE ADDRESSES MADE AVAILABLE BY THE ASSESSEE WERE ALSO RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH THE REMARKS NON KNOWN, NO SUCH ADDRESS OR LEFT ETC. ACCORDINGLY, THE PURCHASE TRANSACTIONS UNDER CONSIDERATION HAD REMAINED UNVERIFIED. IN THE BACKDROP OF THE AFORESAID FACTS, WE ARE PERSUADED TO SUBSCRIBE TO THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT P A G E | 5 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE VERACITY OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FR OM THE AFOREMENTIONED PARTIES. 7. INSOFAR, THE QUANTIFICATION OF THE PROFIT INVOLVED IN MAKING OF SUCH PURCHASES BY THE ASSESSEE FROM THE OPEN/GREY MARKET IS CONCERNED, WE ARE UNABLE TO CONCUR WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES , WHO WE FIND HAD WORKED OUT THE SAME @ 12.5% OF THE AGGREGATE VALUE OF SUCH PURCHASES . AS IS DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES, NO COGENT REASON HAS BEEN GIVEN FOR WORKING OUT THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES UNDER CONSIDERATION @ 12.5% OF TH E IR AGGREGATE VALUE . IN FACT, W E FIND THAT RECENTLY THE HONBLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX - 17 VS. M/S MOHHOMAD HAJI ADAM & COMPANY (ITA NO. 1004 OF 2016, DATED 11.02.2019) , WHILE UPHOLDING THE ORDER OF THE TRIBUNAL, HAD OBSERVED THAT THE ADDITION IN THE HANDS OF THE ASSESSEE AS REGARDS THE BOGUS/UNPROVED PURCHASES WAS TO BE MADE TO THE EXTENT OF BRINGING THE G.P RATE OF SUCH PURCHASES AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASES. THE HONBLE HIGH COURT WHILE CONCLUDING AS HEREIN ABOVE, HAD OBSERVED AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE AO FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CON TENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALE DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADE. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CAS E OF N.K. INDUSTRIES LTD. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER - SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,70,78,125 / - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE P UNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND P A G E | 6 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDIN GLY AS A RESULT OF WHICH PROFIT COMES TO 5.66% THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,1 25/ - WHICH COMES TO RS.20,98,62 1.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDI NGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. 9. IN THESE CIRCUMSTANCES, NO QUESTION OF LAW, THEREFORE, ARISES. ALL INCOME TAX APPEALS ARE DISMISSED, ACCORDINGLY. NO ORDER AT COSTS. AS SUCH, THE HONBLE JURISDICTIONAL HIGH COURT HAD OBSERVED THAT THE ADDITION IN RESPECT OF PURCHASES WHICH WERE FOUND TO BE BOGUS IN THE CASE OF THE ASSESSEE BEFORE THEM, WHO WAS A TRADER, WAS TO BE WORKED OUT BY BRINGING THE G.P. RATE OF SUCH BOGUS PURCH ASES AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASES. 8 . WE THUS RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT , RESTORE THE MATTER TO THE FILE OF THE A.O , WITH A DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS/UNPROVED PURCHASES A GGREGATING TO RS.1,23,82,428/ - IN THE CASE BEFORE US, BY BRINGING THE G.P RATE OF SUCH BOGUS PURCHASE AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASE S . NEEDLESS TO SAY, THE ASSESSEE IN THE COURSE OF THE SET ASIDE PROCEEDING S SHALL FURNISH THE REQUISITE DETAILS BEFORE THE A.O, WHO SHALL AFTER MAKING NECESSARY VERIFICATION S RESTRICT THE ADDITION IN TERMS OF OUR AFORESAID OBSERVATIONS. THE ORDER PASSED BY THE CIT(A) IS SET ASIDE AND THE MATTER IS RESTORE D TO THE FILE OF THE A.O TO GIVE EFFECT TO OUR AFORESAID DIRECTIONS. 9 . THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08 . 05.2019 SD/ - SD/ - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 08 .05.2019 PS. ROHIT P A G E | 7 ITA NO.4121/MUM/2018 A.Y. 2009 - 10 MR. VIRMABHAI A. PATEL VS. THE INCOME TAX OFFICER - 19(3)(5) / 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