CHETAN SHASHIKANT SHAH, MUMBAI V. INCOME TAX OFFICER 13(3)(1), MUMBAI

ITA 4294/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9489 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 22-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Reopening of assessment; Question of law; Tangible material; Accommodation entries; Reason to believe
• Section: 133(6); 143(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 4294 /MUM/201 8 (A.Y: 2009 - 10 ) SHRI CHETAN SHASHIKANT SHAH 1 ST FLOOR, OFFICE NO. 101 33, DARIYASTHAN STREET MASJID, MUMBAI 400 003 PAN: AACPS 9153 Q V. INCOME TAX OFFICER - 13(3)(1 ) AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH SHAH DEPARTMENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 12.06.2019 DATE OF PRONOUNCEMENT : 12 .06 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) 55, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 10.05.2018 FOR THE A.Y. 2009 - 10 CHALLENGING THE ORDER OF THE LD.CIT(A) IN SUSTAINING THE REOPENING OF ASSESSMENT AND SUSTAINING THE ADDITION MADE TOWARDS N ON - GENUINE PURCHASES AT 12.5%. 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESS EE ENGAGED IN THE BUSINESS OF TRADING IN MEDICINE I.E. AYURVEDIC, UNANI BOTANICAL HERBS ROOT 2 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH ETC. FILED RETURN OF INCOME ON 21.09.2009 DECLARING I NCOME OF . 3 , 22 ,146/ - . RETURN WAS PROCESSED U/S. 143(1) OF THE ACT AND SUBSEQUENTLY ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT BY ISSUE OF NOTICE DATED 24.01.2014 U/S. 148 OF THE ACT. THE ASSESSMENT WAS REOPENED BASED ON THE INFORMATION RECEIVED FROM DGIT ( INV .) , MUMBAI , THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES F ROM VARIOUS DEALERS WHO ARE ALL PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOODS. IN THE RE - ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM EIGHT PARTIES WHICH WERE REF ERRED TO IN THE ASSESSMENT ORDER. THE ASSESSEE PRODUCED COPIES OF LEDGER ACCOUNTS ALONG WITH COPIES OF PURCHASE INVOICES, COPIES OF BANK ACCOUNTS EVIDENCING PAYMENTS MADE THROUGH BANKING CHANNELS, PARTY WISE DETAILS OF PURCHASES AND CORRESPONDING SALES AN D SUBMITTED THAT THE PURCHASES MADE ARE GENUINE AND THEY CANNOT BE TREATED AS BOGUS. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HA D OBTAINED ONLY AC COMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE PURCHASES IN THE GRAY MARKET. HOWEVER , ASSESSING OFFICER FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V . SIMIT P. SETH [ 356 ITR 451] ESTIMATED THE PROFIT ELEMENT AT 12.5% FROM SUCH PURCHASES TREATED AS NON - GENUINE AND 3 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH ADDED TO THE INCOME OF THE ASSESSEE. THE L D.CIT(A) SUSTAINED THE ADDITION AND H E REJECTED THE CONTENTIONS OF THE ASSESSEE THAT THE RE OPENING OF ASSESSMENT I S BAD IN LAW. 3. BEFORE ME LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. IN RESPECT OF THE REOPENING OF ASSESSMENT , O N HEARING BOTH THE PARTIES, I AM OF THE VIEW THAT THE ASSESSMENT WAS REOPENED BASED ON THE INFORMATION RECEIVED FROM THE DGIT(INV.) AND THEREFORE, I AM OF THE VIEW THAT THERE IS TANGIBLE MATERIAL CAME ON RECORD AFTER PASSING INTIMATION U/S . 143(1) OF THE ACT. IN THE CASE OF CIT V. RAJESH JHAVERI STOCK BROKERS (P) LTD. [291 ITR 500] , THE HONBLE SUPREME COURT HELD THAT INTIMATION U/S 143(1)(A) IS NOT AN ASSESSMENT AND UP HELD THE VALID ITY OF THE NOTICE ISSUED U/S 148 AND THE REOPENING OF ASSESSMENT . THEIR LORDSHIPS CLARIFIED THE MATTER AS UNDER: 17. THE SCOPE AND EFFECT OF SE CTION 147 AS SUBSTITUTED WITH EFFECT FROM 1 - 41989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147, SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIR CUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UNDER SECTION 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELI EVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT, AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER (I) OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). BUT UNDE R THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS HOWEV ER TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE AT HAND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. 4 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH IN THE CASE OF KONE ELEVATOR INDIA P. LTD. V. ITO 340 ITR 45 4 (MAD), CIT V. IDEAL GARDEN COMPLEX P. LTD. 340 ITR 609 (MAD), IT IS HELD THAT IN THE CASE OF RETURN OF INCOME PROCESSED U/S 143(1), THE ONLY CONDITION TO BE SATISFIED FOR REOPENING IS TAXABLE INCOME HAS ESCAPED ASSESSMENT AND THE ASSESSEES PLEA THAT NO FRESH MATERIAL BEFORE THE AO WARRANTI NG REOPENING, IS NOT RELEVANT. IN VIEW OF THE ABOVE POSITION OF LAW, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE REOPENING DONE BY THE ASSESSING OFFICER BY ISSUING NOTICE U/S 148 OF THE ACT. THUS THE 1 ST GROUND OF APPEAL IS DISMISSED. 4. IN THE CIRCUMSTANCES, I HOLD THAT SINCE THE ASSESSMENT WAS REOPENED BASED ON TANGIBLE MATERIALS AND INFORMATION COMING INTO THE POSSESSION OF THE ASSESSING OFFICER AT LATER STAGE, I HOLD THAT THE REOPENING OF ASSESSMENT U/S 147 OF THE ACT IS VALID, HENCE THE GROUND RAISED BY THE ASSESSEE AGAINST REOPENING OF ASSESSMENT IS DISMISSED. 5. HE FURTHER SUBMITTED THAT ASSESSEE HAD IN FACT PROVIDED THE DETAILS OF DEALERS, THE ASSESSING OFFICER FAILED TO ISSUE NOTICES U/S. 133(6) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE FURTHER PLACING RELIANCE ON THE ORDER OF THE COORDINATE BENCH IN THE CASE OF VAISHALI PRAKASH MUNI V. ITO IN ITA.NOS. 378/MUM/2018 TO 380/MUM/2018 DATED 20.04.2018 SUBMITS 5 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH THAT ESTIMATION OF DISALLOWANCE 2% IS REASONABLE AS HELD BY THE TRI BUNAL , THE SAM E MAY BE APPLIED IN THIS CASE. 6. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IS IN RESPECT OF THE DEALER WHO IS IN THE BUSINESS OF IRON AND STEEL TRADING AND T HEREFORE THE GROSS PROFIT RATE ESTIMATED BY THE TRIBUNAL AT 2% CANNOT BE APPLIED TO THE ASSESSEE WHO IS ENGAGED IN THE B USINESS OF TRADING IN MEDICINE. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PCIT V. M/S. MOHOMMAD HAJI ADAM AND COMPANY IN ITA.NO. 1004 OF 2016 DATED 11.02.2019 REPORTED IN 2019 - TIOL - HIGH COURT MUM - IT HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. 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 O F FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUC H 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 SALES DECLARED. THAT BEING THE POSIT ION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. 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 CASE 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 OBSE RVED AS UNDER - 6 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH '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 PUNISHED 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 TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES T O 5.66 %. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/ - WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PA RTIALLY 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 AS TO COSTS. 8. AS COULD BE SEEN FROM THE ABOVE JUDGEMENT THE TRIBUNAL RESTRICTED THE GROSS PROFIT RATE ON NON - GENUINE PURCHASES TO THE SAME RATE OF GROSS PROFIT AT WHICH THE ASSESSEE HAS SHOWN IN RESPECT OF GENUINE PURCHASES IN THE BOOKS OF ACCOUNTS. THIS WAS CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT FOR THE REASON THAT THERE IS NO DISCR EPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND SALES DECLARED AND ALSO FOR THE REASON THAT PURCHASES CANNOT BE REJECTED WITHOUT DIS TURBING THE SALES IN THE CASE OF A TRADER. THUS, RESPECTFULLY FOLLOWING THE SAID DECISI ON, I DIRECT THE ASSESSING OFFICER TO ESTIMATE THE GROSS PROFIT IN RESPECT OF NON - GENUINE PURCHASES AT THE SAME GROSS PROFIT RATE AT WHICH THE ASSESSEE HAS SHOWN ON THE GENUINE PURCHASES AND COMPUTE THE DISALLOWANCE . THUS , I RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ASCERTAIN 7 ITA NO. 4294/MUM/2018 (A.Y: 2009 - 10) SHRI CHETAN SHASHIKANT SHAH THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN RESPECT OF GENUINE P URCHASES AND TO APPLY THE SAME RATE FOR THE NON - GENUINE PURCHASES. I MAKE IT CLEAR THAT IF THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE ON NON - GENUINE PURCHASES EXCEEDS 12.5% THE ADDITION/DISALLOWANCE BE RESTRICTED TO 12.5% ONLY AS WAS ALREADY DONE BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH JUNE , 2019 SD/ - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 12 / 0 6 / 2019 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM