NAVIN SHANTILAL MEHTA, MUMBAI V. ITO WARD - 32(2)(4), MUMBAI

ITA 4182/MUM/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3524 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Unexplained expenditure; Business income
• Section: 68; 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 4182/MUM/2017 Assessment Year: 2007-08 & ITA No. 4183/MUM/2017 Assessment Year: 2008-09 & ITA No. 4184/MUM/2017 Assessment Year: 2009-10 Mr. Navin Shantilal Mehta, D/102, Shiv Krupa, Misquita Nagar, Vidya Mandir Road, Dahisar (East), Mumbai-400068. Vs. Income Tax Officer, Ward 32(2)(4), Third Floor, C-11, Pratyakshakar Bhavan, Bandra Kurla Complex, Bandra East, Mumbai-400051. PAN No. AAOPM 2720 P Appellant Respondent Assessee by : None Revenue by : Mr. C.T. Mathews, DR Date of Hearing : 30/03/2022 Date of pronouncement : 28/04/2022 ORDER PER OM PRAKASH KANT, AM These three appeals by the assessee are directed against three separate orders, each dated 16/02/2017, passed by the Ld. Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 2 Commissioner of Income-tax (Appeals)-44, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2007-08; 2008-09 and 2009-10 respectively. As common issue of dispute is involved in these appeals, therefore same were heard together and disposed off by way of this consolidated order for convenience. 2. In the grounds raised, the assessee is aggrieved with two additions. The first addition being the addition under section 69C of the Act for bogus purchases, where the Ld. CIT(A) has restricted the addition at the rate of 12.5% of the bogus purchases, which has been worked out to Rs.20,55,638/- for assessment year 2007-08; Rs.45,80,975/- for assessment year 2008-09 and Rs.45,79,432/- for assessment year 2009-10. The second addition is under section 68 of the Act, which is in respect of negative cash balance in the cash flow statement prepared by the assessee for justifying cash deposits in bank account. The amount of addition for assessment year 2007- 08 is Rs.37,28,276/- ; for assessment year 2008-09 the amount is Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 3 Rs.96,35,640/- and for assessment year 2009-10, the amount is Rs.81,42,250/-. 3. At the outset, we may like to mention that despite notifying by registered post as well as through department, none attended on behalf of the assessee. The notice for hearing dated 30/03/2022 has been served by the Income Tax Department on Gurpreet Kaur Mehta (Mobile No. 9820511247). The notice sent by the registry through registered post has also not been return back as per the record, thus it is presumed to be served on the assessee. In the circumstances, we were of the opinion that the assessee is not interested in prosecuting the appeal, and hence same was heard ex-parte qua the assessee after hearing argument of the Ld. Department Representative. 4. We have heard submission of the Department Representative and perused the material on record. We find that as far as first issue of addition towards bogus purchases are upheld by the Ld. CIT(A) is Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 4 concerned, the relevant finding of the Ld. CIT(A) for assessment year 2007-08 is reproduced as under: “4.1 The relevant facts are like this. The assessee is an individual engaged in the business of wholesale trading of iron and steel items. This issue relates to disallowance of Rs.1,64,45,105/- as bogus purchases and consequent addition of the same amount u/s 69C of the Act. The AO has received information from the Sales Tax department that the appellant has shown purchases from 10 bogus concerns. The name of the concerns is mentioned in para 3 of the assessment order. The A.O. extracted information from the Sales Tax Department website. The assessee was asked to show cause as to why the entire amount of Rs. 1,64,45,105/- should not be treated as unexplained expenditure U/s.69C of the Act, 1961. In reply to the show cause issued the assessee submitted that the purchase transactions are genuine and he had received actual delivery of goods. The A.O. however did not accept the contention of the appellant and added Rs.1,64,45,105/- u/s.69C of the Act. 4.2 During the course of appeal proceedings, the appellant filed written submission. The gist of the argument put forward by the appellant in the written submission can be summarized as below: - 1. The appellant has made real purchases. 2. The appellant has made payments for the disputed purchases through proper banking channels. 3. The AO has not brought any evidence on record by his own enquiry and has simply relied on the names as appearing in the list of suspicious dealers published by the sales tax department. Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 5 4. The appellant had filed complete details of purchase and sales before the AO. 5. It was also stated that there cannot be sales without purchases. 6. The appellant also relied on many judgments of ITAT & High Court. 4.3 I have carefully gone through the assessment order as well as the written submission and details filed by the appellant. Some 5-6 years ago, the Sales Tax Department of the Government of Maharashtra had conducted extensive enquiries against such dealers who used to provide bills facilitating bogus purchases/sales. As a result of this inquiry, information about many assesses were forwarded to the Income Tax Department. The A.O. has stated in the assessment order that the appellant is one such person who has inflated his purchases by showing bogus purchases from such persons who appear in the list of bogus entries providers as prepared by the Sales Tax Department. During the course of assessment proceedings, the A.O. also found that the assessee had not been able to establish the genuineness of purchases in dispute. The main arguments of the AO on the basis of which he had formed his opinion were- 1. The assessee was not able to submit any lorry receipts or any details regarding transportation of goods. 2. The suppliers from whom the disputed purchases have been made are included in the list of hawala operators prepared by the Sales Tax Department. 3. The suppliers from whom the disputed purchases have been made, were not produced before the AO. 4. The suppliers from whom the disputed purchases have been made, did not comply to notice u/s 133(6). Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 6 4.4 The appellant is a trader. The AO in his order has dealt exclusively with the purchases of the appellant. However, in the case of a trader, if there are no purchases of materials there cannot be any sales also. The AO had disallowed part of purchases without at the same time questioning the receipt figure of the assessee. The AO has not brought any material on record to show that there is suppression of sales also by the appellant Further, the AO has not rebutted the arguments of the appellant that the payments have been made through banking channels. The fact remains that the appellant has taken care to make his purchases through banking channel and since the banks are required to follow KYC norms the identity of the supplier cannot be doubted. As far as the issue of producing the supplier before the A is concerned, the assessee cannot be reasonably expected to force the supplier to reply to the AO or to appear before the AO. 4.5 In a judgment given by the Allahabad High Court in the case of CIT Vs Jagdish Prasad Tewari 220 Taxman 0141 (2014), it has been held that if the payments have been made by cheques and are reflected in the books of account of the assessee, no adverse inference can be drawn. 4.6 It has been held in the case of M/s. Nikunj Enterprises 372 ITR 619 (Bom) by the Hon'ble Bombay High Court that merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. Further it has been held in the case of Saraswathi Oil Traders vs. CIT 254 ITR 259 (Supreme Court) that when the sales have not been doubted then there was no question to doubt the purchases and the addition should have been made only to the extent of gross profit. To this extent, I am in agreement with the appellant that if the appellant has fulfilled his onus of making the payments by banking channels and has supplied the address of the sellers, then it cannot be presumed that the sellers were bogus simply because the sellers were not found at the given addresses. However, at the same time it cannot be said that the information provided by the sales tax department Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 7 should not be taken cognizance of by the A.O. Therefore, after considering the totality of facts and after following the ratio of Saraswathi Oil Traders vs. CIT(SC) cited supra, I am of an opinion that it is the profit element on the total component in dispute which needs to be added to the income of the appellant., During the year, the total sales of the appellant was Rs.12.01 cores while the total purchases was Rs 11.64 crores. The appellant has however shown a GP rate of 3.14% which seems to be low considering the nature and scale of appellant's business and also considering the fact that huge cash deposit has been found in the bank account of the appellant. The additional profit which should have arisen to the appellant on the disputed purchases is therefore taken as 12.5% of the disputed purchases. The total amount which is being treated as bogus by the AO is Rs.1,64,45,105/-. Thus 12.5% of Rs.1,64,45,105/- which is Rs.20,55,638/- is taken as profit of the appellant on purchases, that are not fully and properly explained. Addition of Rs.20,55,638/- is accordingly confirmed out of an addition of Rs.1,64,45,105/- and the balance is deleted. Grounds of appeal No.1 is therefore partly allowed.” 4.1 Identical finding having given by the Ld. CIT(A) for another two assessment years except change of the amount. In our opinion Ld. CIT(A) has followed the finding in the case of Saraswathi Oil Traders versus CIT (supra) and upheld only additional profit element earned by the assessee on the bogus purchases. In the circumstances, we do not find any error in the order of the Ld. Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 8 CIT(A) on the issue in dispute and we accordingly, uphold the addition for bogus purchases in all the three assessment years. 4.2 As far as second issue of negative cash balance is concerned, we find that the Ld. CIT(A) has duly considered the cash flow statement submitted by the assessee and after calling for remand report from the Assessing Officer, upheld the addition. The Ld. CIT(A) also provided opportunity to the assessee to comment on the remand report of the Assessing Officer, however no compliance was made by the assessee. The relevant finding of the Ld. CIT(A) on the issue of negative cash balance for assessment year 2007-08 is reproduced as under: “5.1 The relevant facts are like this. There was a survey operation in the premises of the appellant on 24.01.2013. As per assessment order it was noticed during the course of survey that the assessee has made cash deposits in his bank account totaling upto Rs.46,39,000/-. The AO asked the assessee to explain the nature and source of the cash deposits in the bank account. The appellant furnished the cash flow statement before the AO and also submitted daily cash summary for the period 01.04.2006 to 31.03.2007. On verification of the daily cash summary it was noted by the AO that after considering the closing balance of AY 2006-07 as Rs.6,57,284/- there is negative cash balance to the extent of Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 9 Rs.37,28,276/- for which the assessee has not filed any explanation. The AO treated the negative cash balance as unexplained cash credit us 68 and added Rs.37,28,276/- to the total income of the appellant. 5.2 During the course of appeal proceedings, written submission was filed by the appellant. It was stated that as per cash book submitted by the appellant in the office of the assessing officer the cash balance was positive. The appellant also submitted copy of daily cash register and summary before the undersigned. Since there was an apparent contradiction in the view taken by the AO and the appellant, a remand report was sought from the AO and the copy of daily cash register filed Para 5.1 to 5.3 of Ld. CIT(A) before the undersigned was forwarded to the AO. The AO in his report stated that the computer-generated cash book summary submitted before the undersigned does not reflect the closing balance of AY 2006-07. The AO further stated that the cash book submitted by the authorized representative of the appellant showing positive cash balance is not correct and there is negative cash balance for AYs 2007-08, 2008-09, 2009-10, 2010-11 & 2011-12. In the concluding remarks the AO wrote the following: "The daily cash register prepared by the assessee through computer and furnished cannot be relied upon as the same was prepared by assessee through computer system as per their convenience and no original cash book furnished for verification with details. 5.3 After the receipt of remand report the case of the appellant was re-fixed for hearing on 30.01.2017. Copy of the remand report was also sent by post and was further handed over to the appellant himself. The appellant sought an adjournment and the case was adjourned for hearing to 15.02.2017. However, on this date no one appeared nor was any written submission made. Thus, it is understood that the appellant has Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 10 nothing to comment on the issue of addition u/s 68 of Rs.37,28,276/. Further there is merit in the argument of the Assessing Officer that the appellant was not able to establish his claim of having positive cash balance as the details found in the course of survey provided direct evidence of the extent of cash balance held by the appellant during the particular assessment year. The addition of Rs.37,28,276/- is therefore confirmed.” 4.3 We find that the Assessing Officer has considered the cash flow statement produced by the assessee to explain the cash deposits in bank account found during the course of the survey proceedings carried out at the premises of the assessee. In such cash flow statement, negative cash balance was observed by the assessee and same was treated as unexplained cash credit. The subsequent computer-generated cash book filed during appellate proceeding before the Ld. CIT(A), has not been accepted in absence of original cash book for verification. In our opinion, in absence of original cash book produced by the assessee, the Ld. CIT(A) is justified in upholding the addition for negative cash balance observed in cash flow statement filed during the course of assessment proceeding. We do not find any error in the order of the Ld. CIT(A) on the issue Mr. Navin Shantilal Mehta ITA Nos. 4182, 4183, 4184/M/2017 11 in dispute and we accordingly uphold the addition made under section 68 of the Act for negative cash balance observed in all the three assessment years. 4.4 The grounds raised by the assessee are accordingly dismissed. 5. In the result, all the three the appeals filed by the assessee are dismissed. Order pronounced in the open Court on 28/04/2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/04/2022 Dragon Legal/Rahul Sharma, Sr. P.S. 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. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai