INCOME TAX OFFICER, WARD-3(2), KALYAN, MUMBAI V. DINESH DEVCHAND SANGHVI, MUMBAI

ITA 4243/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8399 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: BINDU D SANGHAVI
• Keywords: Bogus purchase

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO.4243/M/2017 ASSESSMENT YEAR: 2009-10 INCOME TAX OFFICER, WARD 3(2), KALYAN, 2 ND FLOOR, RANI MANSION, KALYAN-MURBAD ROAD, NR. SBI, KALYAN (W)-421 301 VS. SHRI DINESH DEVCHAND SANGHVI, 205, JOM VILLA, 2 ND FLOOR, S.P. MUKHERJEE ROAD, DOMBIVALI EAST PAN: AMUPS0932R (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SMT. BINDU D. SANGHAVI, A.R. REVENUE BY : SMT. N. HEMALATHA, D.R. DATE OF HEARING : 07.11.2017 DATE OF PRONOUNCEMENT : 23.11.2017 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 20.03.2017 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2009-10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN BUSINESS OF TRADING OF IRON AND STEEL AS PROPRIETOR OF M/S. RECRON STEELS. DURING THE YEAR THE ASSESSING OFFIC ER (HEREINAFTER REFERRED TO AS THE AO) FOUND THAT ASSESSEE HAD MADE BOGUS PURCHASES FROM FOLLOWING PARTIES: SR. NO. NAME OF THE PARTY AMOUNT OF PURCHASE (RS) 1. POOJA TRADING COMPANY 75,724/- ITA NO.4243/M/2017 SHRI DINESH DEVCHAND SANGHVI 2 2. OM ENTERPRISES 51,120/- 3. DIVINE PACKAGING 73,530/- TOTAL 2,00,374/- 3. THE ASSESSEE WAS ASKED TO PRODUCE THE ABOVE PART IES FOR VERIFICATION. THERE WAS NO COMPLIANCE OF NOTICE UND ER SECTION 133(6). THEREFORE, THE AO HAS MADE THE ADDITION ON ACCOUNT OF BOGUS PURCHASES OF RS.2,00,374/-. 4. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS PARTLY ALLOWED THE CLAIM BY OBSERVING AS UNDER: 6 ON GOING THROUGH THE FACTS OF THE CASE DISCUSSED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE PURCHASES OF RS.41.20,0 76/-MADE BY THE APPELLANT FROM VARIOUS PARTIES ARE FROM HAWALA DEAL ERS. THESE DEALERS ONLY GAVE THE BILLS AND THERE WAS NO ACTUAL SALE AN D PURCHASE TRANSACTIONS AND NO TRANSFER OF GOODS. AT THE SAME TIME, WHEN THE SALES ARE ACCEPTED BY AC, WHICH WERE NOT POSSIBLE WITHOUT CORRESPONDING PURCHASES. FURTHER THE APPELLANT ALSO RECONCILED IT EM WISE SALES AGAINST THE SAID PURCHASES TO ADD FURTHER, IF ENTIR E BOGUS PURCHASES ARE ADDED TO THE INCOME OF THE APPELLANT THEN THE NET P ROFIT RATE WILL GO UP TO 90% WHICH IS ABNORMAL FOR THE TRADING BUSINESS T HEREFORE, IT CAN BE INFERRED THAT THE APPELLANT HAD MADE PURCHASES IN T HE OPEN MARKET WHICH WERE USED IN TRADING AND HAD OBTAINED BILLS F ROM THE HAWALA OPERATORS. UNDER SUCH CIRCUMSTANCES THE LIKELIHOOD OF THE PURCHASES BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DISLODGE SUCH FINDINGS. IT IS NOT KNOWN AT WHAT PRI CE THE APPELLANT ACTUALLY MADE THE PURCHASES FROM THIRD PARTIES. IN THIS PROCESS THE APPELLANT SAVED ON THE SALES-TAX / VAT AND ENHANCED HIS PROFIT BY MANIPULATING THE PURCHASES. IN VARIOUS DECISIONS, APPELLATE AUTHORITIES HAD HEL D THAT IF AS A TRADER, THE ASSESSEE SOLD CERTAIN QUANTITY OF MATERIAL; HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED, THE AO COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. THE APPELLATE AUTHORITIES IN SUCH CASES HAVE RESTRICTED THE ADDITIONS VARYING FROM 3% (SHRI JITENDRA MOTANI L.T,A.NO.5927/MUM/2009 A.Y 2006-07 AND L.T.A.NOS.3024 TO 3028/MUM/08 FOR A.YRS.2001-02 TO 2003-04 AND 2005-0 6) TO 12.5% (SIMIT P. SHETH 356 ITR 451, GUJRAT,). THE APPELLATE AUTHORITIES HAVE ALSO STRESSED UPON THE REASONABILITY OF THE PROFIT SHOWN BY THE ASSESSEE WHILE MAKING ANY SUCH DISALLOWANCE (RAMESH KUMAR AN D CO. V/S ITAT MUMBAL (ITA NO. 2959/MUM/2014). IN THE CASE OF THE ASSESSEE, OUT OF TOTAL PURCHASES OF RS, 43,44,838/-, THE PURCHASES OF RS. 41,20,076/- ARE DISALLOWED BY THE AO, WHICH WORKS O UT TO ABOUT ITA NO.4243/M/2017 SHRI DINESH DEVCHAND SANGHVI 3 95%. AS THE ASSESSEE HAS SHOWN GP OF 6 TO 7% IN DIF FERENT YEARS. IN VIEW OF DISCUSSION ABOVE IT WOULD BE APPROPRIATE IF 7% OF UNPROVED PURCHASES AMOUNTING TO RS.41,20,076/-, AN AMOUNT OF RS.2,88,405/- IS DISALLOWED WHICH WILL BE OVER AND ABOVE THE PROFITS SHOWN BY THE APPELLANT IN HIS RETURN OF INCOME. 7. IN THE RESULT THE GROUND OF APPEAL IS PARTLY ALL OWED. 5. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LD. D.R. RELIED UPON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CASES OF SHWETAMBAR STEELS VS. ITO AHMEDABAD AND GA NESH RICE MILLS VS. CIT (294 ITR 316). THE FACTS IN THE PRES ENT CASE SHOW THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FROM WHOM GO ODS ARE STATED TO HAVE BEEN PURCHASED. THE SUPPLIERS WERE FOUND TO BE ENGAGED IN PROVIDING BOGUS BILL WITHOUT ACTUAL DEALING OF GOOD S. IN THIS REGARD, THE ASSESSEE HAS STATED THAT THEY HAD SUBMITTED QUA NTITATIVE DETAILS OF STOCK WITH RESPECT OF THE SALES WITH PURCHASES FROM THE PARTIES DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS SUBMIT TED THE DETAIL OF CORRESPONDING SALES IN RESPECT OF THE PURCHASE FROM THE SAID PARTIES. AS MENTIONED ABOVE THE AO HAS NEVER DISPUTED OR EXA MINED THE ASPECT OF SALES RECEIPTS. SINCE THE SALES MADE BY T HE ASSESSEE WAS NOT DOUBTED OR DISPUTED BY THE AO AND HE HAS ACCEPTED T HE SALES RECEIPTS OF THE ASSESSEE AS IT IS, THEREFORE, THE AO CANNOT DENY THAT PURCHASES WERE NOT MADE BY THE ASSESSEE AND THE MATERIAL WAS NOT USED FOR ITS SALES. WHAT IS UNDER DISPUTE IS THE PURCHASES FROM T HE PARTIES FROM WHOM BILLS HAVE BEEN TAKEN AND CHEQUES HAVE BEEN IS SUED TO THEM. PURCHASES ARE NOT IN DISPUTE BUT THE PARTIES FROM W HOM PURCHASE ARE SHOWN TO HAVE BEEN MADE ARE DISPUTED AND SUSPICIOUS . THE AO HAD MADE THE ADDITION AS SOME OF THE SUPPLIERS WERE DEC LARED HAWALA DEALERS BY THE VAT DEPARTMENT. THIS MAY BE A GOOD R EASON FOR ITA NO.4243/M/2017 SHRI DINESH DEVCHAND SANGHVI 4 MAKING FURTHER INVESTIGATION BUT THE AO DID NOT MAK E ANY FURTHER INVESTIGATION AND MERELY COMPLETED THE ASSESSMENT O N SUSPICION. ONCE THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUE, IT WAS INCUMBENT ON THE AO TO HAVE VERIFIED THE PAYMENT DETAILS FROM THE BANK OF THE ASSESSEE A ND ALSO FROM THE BANK OF THE SUPPLIERS TO VERIFY WHETHER THERE WAS A NY IMMEDIATE CASH WITHDRAWAL FROM THEIR ACCOUNT. NO SUCH EXERCISE HAS BEEN DONE OR FINDINGS RECORDED. THERE WAS NO DETAILED INVESTIGAT ION MADE BY THE AO HIMSELF. IT IS ALSO FOUND THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE WHICH ARE DULY REFLECTED IN TH E BANK STATEMENT OF THE ASSESSEE. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS RECEIVED CASH BACK FROM THE SUPPLIERS. MERELY BECAU SE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO OR SOME CONFIRMATION L ETTERS WERE NOT FURNISHED, ONE CANNOT CONCLUDE THAT THE PURCHASES W ERE NOT MADE BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISIO N OF NIKUNJ EXIMP ENTERPRISES VS. CIT 216 TAXMAN 171 (BOM). TO THIS E XTENT, I AM OF THE VIEW THAT IF THE ASSESSEE HAS FULFILLED ITS ONU S OF MAKING THE PAYMENT BY CHEQUE AND HAS SUPPLIED THE ADDRESSES OF THE SELLERS THEN IT CANNOT BE PRESUMED THAT SUPPLIER WERE BOGUS SIMP LY BECAUSE THE SELLERS WERE NOT FOUND AT THE GIVEN ADDRESS. THERE IS A CONSIDERABLE TIME GAP BETWEEN THE PERIOD OF PURCHASE TRANSACTION AND PERIOD OF SCRUTINY PROCEEDINGS. THE AO HAS NOT BROUGHT ANY MA TERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSION OF SALES. IT IS B ASIC RULE OF ACCOUNTANCY AS WELL AS OF TAXATION LAWS THAT PROFIT FROM BUSINESS CANNOT BE ASCERTAINED WITHOUT DEDUCTING COST OF PUR CHASE FROM SALES. ESTIMATION OF PROFIT RANGING FROM 12.5% TO 15% HAS BEEN UPHELD BY ITA NO.4243/M/2017 SHRI DINESH DEVCHAND SANGHVI 5 THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V S SIMIT P SHETH 356 ITR 451 (GUJ.). RESPECTFULLY FOLLOWING THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 38 TAXMAN 385 (GUJ), I DISMISS THE DEPARTMENTAL APPEAL. 6. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.11.2017. SD/- (D.T. GARASIA) JUDICIAL MEMB ER MUMBAI, DATED: 23.11.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.