ASST CIT 21(3), MUMBAI V. R.M.MEHTA, MUMBAI

ITA 4294/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0377 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAJOJ KUMAR
• Assessee Lawyers: KASHIF MULLA
• Keywords: Bogus purchase
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4294 /MUM/2015 (ASSESSMENT YEAR: 2010-11) A C I T - 21 (3) VS. M/S. R.M. MEHTA & CO. ROOM NO. 209, 2ND FLOOR PIRAMAL CHAMBERS PAREL, MUMBAI 400012 BLOCK NO. 4, BHARGAV BHAVAN SHIVAJI PARK NO. 2 DADAR (W), MUMBAI 400028 PAN AAAFR1399D APPELLANT RESPONDENT APPELLANT BY: SHRI MAJOJ KUMAR RESPONDENT BY: SHRI KASHIF MULLA DATE OF HEARING: 15 .06.2017 DATE OF PRONOUNCEMENT: 15 .06.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-33, MUMBAI DATED 30.04.2015 FOR A.Y. 2010-11 . 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO T HE RELIEF GIVEN BY THE CIT(A) ON ACCOUNT OF BOGUS PURCHASES AMOUNTING TO RS.4,60,92,954/- 3. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE FACTS RELA TING TO THE ISSUE BEFORE US IS THAT THE AO, ON THE BASIS OF INFORMATION RECE IVED FROM SALES TAX DEPARTMENT, NOTED THAT THE ASSESSEE HAS MADE BOGUS PURCHASES FROM TWO PARTIES NAMELY, M/S. RAJ TRADERES AND M/S. BHADRA C ORPORATION TOTALLING TO RS. 5,26,77,661/-. THE AO ACCORDINGLY ISSUED A S HOW CAUSE NOTICE TO THE ASSESSEE AND CONSEQUENTLY ISSUED SUMMONS UNDER SECTION 131 TO SHRI RAHUL MEHTA AND SHRI PRAVIN KUMAR, PARTNERS OF THE FIRM FROM WHOM THE ASSESSEE MADE PURCHASES AND AFTER RECORDING THEIR S TATEMENTS THE AO TOOK THE VIEW THAT THE ASSESSEE HAS MADE BOGUS PURCHASES AMOUNTING TO RS.5,26,77,661/- AND DISALLOWED THE SAME WHILE MAKI NG THE ASSESSMENT. ITA NO. 4294/MUM/2015 M/S. R.M. MEHTA & CO. 2 4. WHEN THE MATTER WENT BEFORE THE CIT(A), WE NOTED TH AT, THE CIT(A) HAS CALLED FOR THE REMAND REPORT FROM THE AO AND UL TIMATELY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, REDUCE D THE ADDITION TO 12.5% OF RS.2,26,77,661/- BY OBSERVING AS UNDER: - 43. AS OF NOW THE ISSUE OF BOGUS PURCHASES HAS BEE N MUCH DISCUSSED AND DEBATED BY THE VARIOUS COURTS AND TRI BUNALS. IN MANY JUDICIAL PRONOUNCEMENTS ON THE ISSUE, THE COURTS HA VE TAKEN A CONSISTENT VIEW THAT IN CASE OF NON-EXISTENT PARTIE S FROM WHOM THE PURCHASES ARE SHOWN TO HAVE BEEN MADE, ONLY PART OF SUCH PURCHASES CAN BE DISALLOWED, IN THE CASES WHERE THE CORRESPON DING SALES ARE TREATED AS GENUINE, OR ALTERNATIVELY THE PROFIT EMB EDDED IN SUCH SALES AGAINST THE ALLEGED BOGUS PURCHASES, CAN ONLY BE BR OUGHT TO TAX. 44. IN THE CASE OF CIT-1 VS SIMIT P. SHETH, ITA NO. 553 OF 2012, ORDER DATED 16/01/2013, WHILE DECIDING A SIMILAR IS SUE, THE HONBLE HIGH COURT OF GUJARAT HAS HELD THAT WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATU RE OF DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THR EE SUPPLIER FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED TH E STEEL DID NOT OWN UP TO SUCH SALES. HOWEVER, VITAL QUESTI ON WHILE CONSIDERING WHETHER THE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY TH E PROFIT ELEMENT EMBEDDED THEREIN WAS TO ASCERTAIN WHETHER T HE PURCHASES THEMSELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCHASES WERE ACTUALLY MADE BUT NOT FR OM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WI THOUT PROPER BILLING OR DOCUMENTATION. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TR ADER IN STEEL THE ASSESSEE SOLD CERTAOM QUANTITY OF STEEL, HE WOU LD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSE NCE THEREFORE, THE COMMISSIONER (APPEALS) BELIEVED ASS ASSESSEES THEORY THAT THE PURCHASES WERE NOT BOGUS BUT WERE M ADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNTS. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PR ICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE AD DED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLEAR BY DECISIO N OF THIS COURT. IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILA R VIEW IN CASE OF COMMISSIONER OF INCOME TAX-IV VS. VIJAY M. MISTR Y CONSTRUCTION LTD. VIDE ORDER DATED 10.01.2011 PASSE D IN TAX APPEAL NO. 1090 OF 2009 AND IN CASE OF COMMISSIONER OF INCOME TAX-1 VS. BHOLANATH POLY FEB PVT. LTD. VIDE ORDER DATED ITA NO. 4294/MUM/2015 M/S. R.M. MEHTA & CO. 3 23.10.2012 PASSED IN TAX APPEAL NO. 63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PROTEINS PVT . LTD. VS. CIT REPORTED IN 58 ITD 423 CAME TO BE APPROVED.' 45. SIMILARLY WHILE DEALING WITH AN IDENTICAL ISSUE , IN THE CASE OF CIT, VS. BHALANATH POLY FAB (P) LTD., I.T.A. NO. 63 OF 2012, IN THE ORDER DATED 23/10/2012, THE HONBLE HIGH COURT OF GUJARAT.-HAS HELD AS UNDER:- WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTED NO ERROR. WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHET HER THE PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MAD E WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT. THE TRIBUN AL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO THE CONCLUS ION THAT THE ASSESSEE DID PURCHASE THE CLOTH AND SELL THE FI NISHED GOODS. IN THAT VIEW OF THE MATTER, AS NATURAL COROLLARY, N OT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX. THIS WAS THE VIEW OF THIS COURT IN THE CASE OF SANJAY OILCAKE INDUSTRIES V. CIT [2009] 316 ITR 274 (GUJ). SUCH DECISION IS ALSO FOLLOWED B Y THIS COURT IN A JUDGMENT DATED AUGUST 16, 2011, IN TAX APPEAL NO. 679 OF 2010 IN THE CASE OF CIT V. KISHOR ATHRUTLAL PAIEL. IN THE RESULT, TAX APPEAL IS DISMISSED. 46. IN VIEW OF THE FACTS AND CIRCUMSTANCES AND THE JUDICIAL PRONOUNCEMENTS CITED ABOVE WHAT CAN BE DISALLOWED O R TAXED IN THE INSTANT CASE OF THE ALLEGED BOGUS PURCHASES, AS HEL D BY THE HON'BLE HIGH COURT OF GUJARAT IN THE ABOVE CITED CASES IS O NLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES SHOWN TO HAVE BEEN MADE FROM THE ALLEGED BOGUS PARTIES. 47. IN THE INSTANT CASE, ALL THE FACTS AND CIRCUMST ANCES OUTLINED ABOVE LEADS TO THE CONCLUSION THAT ALTHOUGH THE PUR CHASES MADE BY THE APPELLANT FROM THE 2 PARTIES MENTIONED ABOVE DU RING THE YEAR UNDER CONSIDERATION ARE NOT IN DOUBT BUT AT THE SAM E TIME IT DIFFICULT TO ACCEPT THAT THE PURCHASE PRICE SHOWN ON THE INVOICE S/BILLS ISSUED BY THESE PARTIES IS AS PER THE PREVAILING MARKET PRICE OF THOSE MATERIAL S. THE APPELLANT HAS NOT PLACED ANY EVIDENCE ON RECORD THAT THE GOODS WERE PURCHASED FROM THE ABOVE PARTIES AT ARMS LENGT H PRICE. THE APPELLANT HAS ALSO NOT PLACED ON RECORD ANY COMPARA BLE BILLS/INVOICES FOR PURCHASES OF SIMILAR ITEMS MADE FROM OTHER PART IES TO ESTABLISH THAT THE PURCHASE PRICE PAID TO THE 2 PARTIES IN QU ESTION WERE AT PAR WITH THE PURCHASES MADE FROM OTHER PARTIES DURING T HE PERIOD UNDER CONSIDERATION. IN THE ABSENCE OF ANY SUCH EVIDENCE PLACED ON RECORD, THE CORRECTNESS OF THE PURCHASE PRICE MENTIONED ON SUCH BILLS/INVOICES ISSUED BY THE PARTY IN QUESTION CANNOT BE ACCEPTED AND THEREFORE SOME ADDITIONAL GROSS PROFIT NEED TO BE ESTIMATED O N THE PURCHASES MADE FROM THE ABOVE PARTIES IN QUESTION. 48. AS THE PURCHASES INVOICES ISSUED AGAINST THE AL LEGED BOGUS PURCHASES REMAINS UNVERIFIABLE, AND PART OF THE PRO FIT ELEMENT ON THE ITA NO. 4294/MUM/2015 M/S. R.M. MEHTA & CO. 4 PURCHASES MADE FROM THE ABOVE MENTIONED 2 PARTIES I .E. M/S RAJ TRADERS AND M/S BHADRA CORPORATION IS ALREADY INCLU DED IN THE ABOVE GROSS PROFIT RATE SHOWN FOR THE YEAR UNDER CO NSIDERATION. IN THE CIRCUMSTANCES, IT WOULD BE FAIR AND JUST, IF THE AD DITIONAL GROSS PROFIT @ 12.5% IS APPLIED ON SUCH TOTAL ALLEGED BOGUS PURC HASES AMOUNTING TO RS. 5,26,77,661/-. AS A RESULT, THE ADDITIONAL G ROSS PROFIT ON SUCH PURCHASES WOULD COME TO RS. 65,84,707/- WHICH NEED TO BE ADDED TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF ALLEGED BO GUS PURCHASES FOR THE YEAR UNDER CONSIDERATION AND THE BALANCE ADDITI ON MADE AMOUNTING TO RS.4,60,92,954/- IS HEREBY DELETED. TH E ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 5. THE LEARNED D.R., EVEN THOUGH VEHEMENTLY CONTENDED THAT THIS IS A CASE WHERE ALL THE PURCHASES ARE BOGUS AND SINCE TH E ASSESSEE FAILED TO PROVE THE GENUINENESS IT CANNOT BE ALLOWED, BUT COU LD NOT ADDUCE ANY EVIDENCE OR COGENT MATERIAL WHICH MAY PROVE THAT TH E PURCHASES AND SALES MADE BY THE ASSESSEE WERE NOT RECONCILED. THIS FACT PROVES THAT THE ASSESSEE WOULD HAVE MADE PURCHASES AS THE ASSESSEE COULD MAKE THE SALES ONLY IF PURCHASES ARE MADE. WITHOUT MAKING PU RCHASES IT WOULD NOT BE POSSIBLE THAT THE ASSESSEE COULD HAVE MADE THE S ALES. THE REVENUE HAS DULY ACCEPTED THE SALES MADE BY THE ASSESSEE. THE N ATURAL INFERENCE WILL BE THAT THE ASSESSEE MIGHT NOT HAVE MADE THE PURCHA SES FROM THESE PARTIES, BUT TO SAVE TAX MIGHT HAVE MADE THE PURCHA SES FROM SOME OTHER PARTIES AND PROCURED THE BILLS THESE PARTIES. THIS DOES NOT PROVE THAT THERE HAD NOT BEEN ACTUAL PURCHASES MADE BY THE ASSESSEE. BY MAKING PURCHASES FROM SOME OTHER PARTIES THE ASSESSEE MIGH T HAVE SAVES TAX. TO THAT EXTENT THE ASSESSEE MAY HAVE EARNED INCOME. TH EREFORE, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF TH E CIT(A) IN REDUCING THE ADDITION TO 12.5% OF SUCH PURCHASES AMOUNTING TO RS .5,26,77,661/-. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A). 3. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 15 TH JUNE, 2017 ITA NO. 4294/MUM/2015 M/S. R.M. MEHTA & CO. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -33, MUMBAI 4. THE CIT - 21, MUMBAI 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.