ACIT 16(1), MUMBAI V. NEELAM SHISHIR KOTHARI, MUMBAI

ITA 4302/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9141 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 22-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Accommodation entries

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , A M AND SHRI AMARJIT SINGH, JM ./ I.T.A. NO. 4302/MUM/2016 ( / ASSESSMENT YEAR: 2008 - 09 ) ACIT - 16(1) RO OM NO. 439, AAYAKAR BHAVAN, M. K. MARG, MUMBAI - 20 / VS. NEELAM SHISHIR KOTHARI 7/W, LAXMI NIWAS, 7 TH FLOOR, 16 TH ROAD, KHAR (W), MUMBAI - 400 052 ./ ./ PAN/GIR NO. AAHPK 0169 P ( / APPELLANT ) : ( / RESPOND ENT ) / APPELLANT BY : SHRI RAM TIWARI / RESPONDENT BY : NONE / DATE OF HEARING : 07.09.2017 / DATE OF PRONOUNCEMENT : 03.10 .2017 / O R D E R PER SHAMIM YAHYA , A. M.: T HIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER OF LEARNED CIT ( A ) - 4, MUMBAI DATED 17.03.2016 A ND PERTAINS TO ASSESSMENT YEAR 2008 - 09. 2. T HE ISSUE RAISED IS THAT CIT - A ERRED IN SUSTAINING DISALLOWA NCE OF 7 % OF BOGUS PURCHASE . 3. T HE GROUNDS OF APPEAL RE AD AS UNDER : 2 ITA NO. 4302/MUM/2016 (A.Y. 2008 - 09) ACIT VS. NEELAM SHISHIR KOTHARI 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) ERRED IN NOT APPRECIATING THE FACTS OF THE CASE AND THE REASONING FOR DECISION GIVEN BY THE GUJARAT HIGH COURT IN THE CASE OF SHRI. SIMIT P. SHETH FOLLOWING WHICH HE HAS GIVEN RELIEF. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A) ERRED IN NOT APPRECIATING THE BASIS ON WHICH THE GUJARAT HIGH COURT ADOPTED THE PROFIT RATE OF 12.5% AS EMBEDDED PROFIT OF BOGUS PURCHASE IN THE CASE OF SHRI. SIMIT P. SHETH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE CIT(A} ERRED IN ARBITRARILY ADOPTING THE GROSS PROFIT RATE SHOWN OF 7% AS EMBEDDED PROFIT WITHOUT APPRECIATING THAT THE RATE OF 12.5% WAS DETERMINED IN THE CASE OF SH RI. SIMIT P. SHETH BY GUJARAT HIGH COURT WITHOUT ANY REFERENCE TO THE GROSS PROFIT RATE SHOWN. . 4. I N THIS CASE , THE DCIT CENTRAL CIRCLE 42, MUMBAI VIDE LETTER DATED 28 - 06 - 2013 SENT INFORMATION ABOUT THE PARTIES WHO WERE ENGAGED IN BOGUS SALE TRANSACTIO NS. AS PER THE INFORMATION, M/S. SHINE STAR IMPEX PVT LTD., IS A BOGUS PARTY AND WAS OPERATING ON COMMISSION BASIS AND THERE WAS NO ACTUAL SALE OF GOODS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED GOODS AMOUNTING TO RS.38,74,528/ - . 5. BASED UPON THE ABOVE INFORMATION ASSESSING OFFICER MADE THE ASSESSMENT AS UNDER : 8) FROM THE DETAILS WITH REGARD TO THE PURCHASE OF RAW MATERIALS, SUBMITTED BY ASSESSEE VIDE LETTER DATED 11 - 11 - 2014, IT IS SEEN THAT THE ASSESSEE SHOWN TO HAVE MADE PURCHASES FROM M/S.SUN SHINE IMPORT & EXPORT PVT LTD., ON DIFFERENT DATES AND THE SAME HAS BEEN REFLECTING IN HIS BOOKS OF ACCOUNT. 9) IN THIS CONTEXT, IT IS TO BE MENTION HERE THAT AS PER THE INFORMATION RECEIVED, THE PURCHASES FROM THE ABOVE MENTIONED PARTY PROVED TO BE BO GUS. THE PAYMENTS MADE BY CHEQUES AGAINST SUCH BOGUS PURCHASE BILLS TO THESE HAWALA OPERATORS, HOWEVER IN THE LATER STAGE THEY ARE RECEIVED BACK IN CASH. THE HAWALA OPERATOR GETS ONLY A COMMISSION FOR THE SERVICES RENDERED - GIVING ACCOMMODATION ENTRIES, AS ALLEGED AND CONFIRMED BY THEM. USUALLY THESE 3 ITA NO. 4302/MUM/2016 (A.Y. 2008 - 09) ACIT VS. NEELAM SHISHIR KOTHARI PURCHASES FROM HAWALA OP ERATORS ARE SHOWN ON CREDIT. THE REASONS FOR THESE PURCHASES BEING ON CREDIT ARE NOT FAR TO SEEK. ONE OF THE REASONS IS THAT THE BILLS ARE NOT ARRANGED IN NORMAL DAY - TO - DAY CONDUCT OF BUSINESS BUT MUCH LATER THAN THE DATE OF CORRESPONDING SALE. OBVIOUSLY THESE BILLS HAVE TO BE BACK DATED AND THE PAYMENT BY CHEQUE CAN ONLY BE MADE AFTER THE ACTUAL DATE ON WHICH BILLS ARE SUBSEQUENTLY OBTAINED. FOR THIS REASON ENTRIES IN ACCOUNTS FOR SUC H PURCHASES WILL BE ON CREDIT. ANOTHER REASON FOR THIS IS THAT IT IS NORMAL HUMAN TENDENCY FOR EVERY BUSINESSMAN TO TRADE A LITTLE BEYOND WHAT HIS CASH FLOW PERMITS. CONSEQUENTLY HE I S USUALLY SHORT ON LIQUIDITY. THE GENUINE SUPPLIERS PRESS FOR THEIR PAY MENTS AND SUCH PAY MENTS TO THEM GET PRECEDENCE. THE ASSESSEE THEREFORE DELAYS SHOWING PAYMENTS AGAINST BOGUS PURCHASES (HAWALA OPERATOR DOES NOT PRESS FOR THE PAYMENT AS HE HAS NOT SUPPLIED THE GOODS) - WAITING FOR THE LIQUIDITY POSITION TO EASE. SO THE FACT IS THAT BEFORE THE DATE OF SALE, THE ASSESSEE MAKES PURCHASES FROM UNDISCLOSED PARTI ES WHEREAS THE PURCHASES ARE SHOWN ON CREDIT IN THE ACCOUNTS FROM HAWALA OPERATORS, WHICH HAS BEEN DONE IN THE ASSESSEE'S CASE. THE BILLS WERE RAISED AT FAG END OF THE FINANCIAL YEAR AND THE PAYMENTS WERE MADE BY CHEQUE IN THE SUBSEQUENT YEAR. THE ENTIRE AMOUNT OF RS.38,74,528/ - IS SHOWN AS CREDITORS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. 10) THUS, THE ABOVE FACTS PROVE THAT THE TRANSACTION WITH M/S.SUNSHINE IMPORT & EXPORT PVT LTD., IS PROVED TO BE THE BOGUS AS PER THE STATEMENT RECORDED OF SHRI SAURABH GARG, ONE OF THE DIRECTOR OF SUNSHINE IMPORT & EXPORT PVT LTD., AND THE ENTRIES IN BOOKS OF ACCOUNT AND SUBSEQUENT PAYMENTS TO THE SAID PARTY. 11) THEREFORE, AFTER GIVING AMPLE OPPORTUNITY THE ASSESSEE FAILED TO SUBMIT THE DETAILS OF PURCHASE TRANSACTIONS WITH M/S.SUNSHINE IMPORT & EXPORT PVT LTD., AND SUBSTANTIATE THAT THE PURCHASES ARE GENUINE. THEREFORE, RS.38,74,528/ - IS DISALLOWED AND ADDED BACK TO THE INCOME O F THE ASSESSEE . 6. A GAINST THE ABOVE ORDER , THE ASSESSEE APPEALED BEFORE THE LEARNED CIT ( A ) . LD. CIT(A) NOTED THAT THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY HIMSELF. LEARNED CIT ( A ) SUSTAINED THE ADDITION AT THE RATE OF 7% OF THE BOGUS PURCHASE BY H OLDING AS UNDER : THUS, IN THE LIGHT OF ABOVE JUDICIAL PREPOSITIONS, IT CAN BE HELD THAT WHEN THE ASSESSING OFFICER HAS ADMITTED THE CORRESPONDING SALES/CONSUMPTION, THE ENTIRE PURCHASE CANNOT BE DISALLOWED. IN THE CASE OF CIT VS. SIMIT P. SHETH REPORTED 4 ITA NO. 4302/MUM/2016 (A.Y. 2008 - 09) ACIT VS. NEELAM SHISHIR KOTHARI IN 38 TAXMANN.COM 385, HON'BLE GUJARAT HIGH COURT HAS MERELY APPROVED THE ADDITION OF PROFIT TO SUCH TRANSACTION. RESPECTFULLY, FOLLOWING THE JUDGEMENT RELEVANT TO THIS ISSUE, AS THE APPELLANT HAS NOT ESTABLISHED THE PURCHASES FROM THE ABOVE PARTIES AND, CON SIDERING THE FACT THAT THERE IS A CONSUMPTION OR USE OF THE SAID MATERIAL, AS ADMITTED BY THE LD. ASSESSING OFFICER, THE EMBEDDED ELEMENT OF PROFIT HAS TO BE ASCERTAINED. THE NATURE OF BUSINESS OF INDIVIDUAL ASSESSEE HAS TO CONSIDERED WITH REFERENCE TO EXT ENSION OF PROFIT. IN THE CASE OF SIMIT P. SHETH, PROFIT W AS TAKEN @ 12.5%, HOWEVER, IN THIS CASE GROSS PRO F IT HAS NEVER BEEN MORE THAN 7%. IN THIS YEAR, APPELLANT HAS SHOWN GROSS PROFIT @6.67% WHEREAS IN 2009 - 10, IT IS @ 6.81%. CONSIDERING THE OVERALL FACT S AND CIRCUMSTANCES O F THE CAS E, THE ELEMENT OF PROFIT IN RESPECT OF SUCH PURCHASES HAS TO BE ADDITIONALLY C ONSIDERED BECAUSE WHEN THERE IS A SALE, THERE IS A PURCHASE WHICH MAY NOT BE FROM M/S. SHINE STAR IMPEX PVT. LTD. BUT FROM OPEN MARKET. HENCE, IN SU CH CIRCUMSTANCES, PROFIT HAS TO BE CONSIDERED NEARER TO THE NORMAL PROFIT O F THE BUSINESS. IN THIS CASE, AS HELD EARLIER, ENTIRE PURCHASE HAS NOT BEEN ESTABLISHED. THEREFORE, IN THE INTEREST OF JUSTICE, A REASONABLE VIEW IS REQUIRED TO BE TAKE N. THE APPELL ANT IS A MANUFACTURER AND SELLER OF JEWELLERY AND CONSIDERING THE NOR MAL TREND OF PROFIT, IT IS FOUND APPROPRIATE TO APPLY THE RATIO OF 7% OF SUCH PURCHASES HAVING ADDITIONAL PROFIT MARGIN. THUS, THE DISALLOWANCE OF EXPENDITURE WITH REFERENCE TO EMBEDDED G .P. @7% IS TO BE DISALLOWED AND NOT THE ENTIRE PURCHASE P RI CE OF R S.38,74,528/ - . THUS, DISALLOWANCE OF EXPENDITURE OF RS.2,71,216/ - WITH REFER ENCE TO P ROFIT IS SUSTAINED AND REST OF THE DISALLOWANCE OF RS.36,03,311/ - IS DELETED. 7. AGAINST THE ABOVE ORDER OF LEARNED CIT ( A ), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 8. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE NOTICE. IT IS NOTED THAT EARLIER ALSO NO ONE HAS ATTENDED ON B EHALF OF THE ASSESSEE. HENCE , THIS APPEAL IS BEING DECIDED BY HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. 9. WE FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMO DATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE 5 ITA NO. 4302/MUM/2016 (A.Y. 2008 - 09) ACIT VS. NEELAM SHISHIR KOTHARI BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS . THE ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INF ORMATION ASSESSMENT WAS REOPENED. ON THE BASIS OF THIS INFORMATION , IN THE COURSE OF ASSESSMENT , THE ASSESSING OFFICER NOTED THAT THE PURCHASES WERE BOOKED BY OBTAINING B ILLS AT THE FAG END OF THE YEAR. THE PAYMENT FOR THE SAME WAS MADE IN THE NEXT YEAR. H E HELD THAT THE PURCHASE BILLS ARE BOGUS. HE DISALLOWED 12.5% OF THE BOGUS PURCHASE. UP ON ASSESSEE'S APPEAL , THE LEARNED CIT ( A ) UPHELD THE REOPENING AND HELD THAT ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY HIMSELF , HENCE LEARNED CIT - A SUSTAINED ONLY PART OF THE ADDITION . HE RESTRICTED THE DISALLOWANCE 7% BEING PROFIT EMBEDDED THERE IN. 10. IN THESE CIRCUMSTANCES , THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONB LE GUJARAT HIGH COURT DECISION IN THE CASE OF T AX A PPEAL N O . 240 OF 2003 IN THE CAS E OF N K INDUSTRIES VS DY CIT, ORDER DT 20/06.2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. IT WAS EXPOUNDED THAT WHEN PUR CHASE BILLS HAVE BEEN FOUND TO BE BOGUS , 100% DISALLOWANCE WAS REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONGWITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER DT 16 .1 2017. 11. WE FIND THAT THE FACTS OF THE PRESENT CASE A RE DIFFERENT. THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY HIMSELF. HE HA S ONLY NOTED THAT ON THE BASIS OF INFORMATION 6 ITA NO. 4302/MUM/2016 (A.Y. 2008 - 09) ACIT VS. NEELAM SHISHIR KOTHARI RECEIVED FROM SALES TAX DEPARTMENT AND THE FACT THAT ALL THE P URCHASES HAVE BEEN BOOKED IN CREDIT AT THE END OF THE YEAR, HE WA S TREATI NG THE SAME TO B E BOGUS AND DISALLOWING 12.5% THE RE OF. IN SUCH CIRCUMSTANCES , IN OUR CONSIDERED OPINION , THE LEARNED CIT ( A ) IS CORRECT IN RESTRICTING THE DISALLOWANCE TO 7% ON THE REASONING MENTION IN HIS APP ELLATE ORDER AS ABOVE. ACCORDINGLY , WE DO NOT FI ND ANY INFIRMITY IN ORDER OF LEARNED CIT ( A ) . HENCE, WE UPHOLD THE ORDER OF LD. CIT(A). 12. IN THE RESULT , THIS APPEAL FILED BY THE R EVENUE STANDS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 03.10.2017. SD/ - SD/ - ( AMARJIT SINGH ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED :03.10.2017 . . ./ ROSHANI , SR. PS / COP Y OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBA I