DEPUTY COMMISSIONER OF INCOME TAX-4(3)(1), MUMBAI V. RISHAB APPARELS PRIVATE LIMITED, MUMBAI

ITA 4380/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5906 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: MONI JAIN
• Keywords: Reopening of assessment; Bogus purchase; Bogus Share capital; Search and seizure; Accommodation entries
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NOS.4380 & 4381/M/2017 ASSESSMENT YEARS: 2007-08 & 2008-09 ACIT 4(3)(1), R NO.649, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400020 VS. M/S. RISHAB APPARELS PVT. LTD., 2 ND ASSEMBLY LANE, KALBADEVI, MUMBAI 400 002 PAN: AABCR 1663G (APPELLANT) (RE SPONDENT) CO NO.167/M/2018 (ITA NO.4380/M/2017) ASSESSMENT YEAR: 2007-08 M/S. RISHAB APPARELS PVT. LTD., 2 ND ASSEMBLY LANE, KALBADEVI, MUMBAI 400 002 PAN: AABCR 1663G VS. DCIT 4(3)(1), ROOM NO.649, AAYAKAR BHAVAN, MUMBAI - 400020 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : MS. MONI JAIN, A.R. REVENUE BY : SHRI CHAITANYA ANJARIA, D.R. DATE OF HEARING : 15.11.2018 DATE OF PRONOUNCEMENT : 15.01.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED TWO APPEALS BY THE REVENUE AND TH E CROSS OBJECTION BY THE ASSESSEE HAVE BEEN PREFERRED AGAIN ST THE COMMON ORDER DATED 20.03.2017 OF THE COMMISSIONER O F INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A )] RELEVANT TO ASSESSMENT YEARS 2007-08 & 2008-09. ITA NOS.4380 & 4381/M/2017 CO NO.167/M/2018 M/S. RISHAB APPARELS PVT. LTD. 2 ITA NO.4380/M/2017 (A.Y. 2007-08) 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD, CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.2, 43,31,827/- MADE ON ACCOUNT OF BOGUS PURCHASES'. 2. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY.' 3. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.2,43,31,827/- BY LD. CIT(A) AS MA DE BY THE AO TOWARDS BOGUS PURCHASES. THE ASSESSEE ALSO FILED C ROSS OBJECTION CHALLENGING THE REOPENING OF ASSESSMENT U NDER SECTION 147 OF THE ACT. DURING THE COURSE OF HEARING, THE LD. A.R. OF THE ASSESSEE DID NOT PRESS THE CO AND THEREFORE THE SAM E IS BEING DISMISSED AS NOT BEING PRESSED. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSMENT WA S FRAMED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 10 .12.2009 ACCEPTING THE RETURN OF INCOME OF RS.77,84,790/-. THEREAFTER, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE UNDER SECTION 148 ON 19.03.2014 ON THE BASIS OF INFORMATION RECEI VED FROM DGIT (INV.), MUMBAI THAT ASSESSEE HAS RECEIVED BILL S OF BOGUS PURCHASES TO THE TUNE OF RS.19,46,54,612/- FROM SIX HAWALA OPERATORS AS PER THE DETAILS BELOW: SR. NO. NOME OF HAWALA ENTRY OPERATOR AMOUNT 1 MAHALAXMI TRADING CO. 1,24,75,014 2 NATASHA ENTERPRISES 3,94,51,826 3 NEWPLANET TRADING CO. P. LTD. 4,74,26,735 4 JPK TRADING (I) PVT. LTD. 3,17,81,062 ITA NOS.4380 & 4381/M/2017 CO NO.167/M/2018 M/S. RISHAB APPARELS PVT. LTD. 3 5 OSTWAL TRADING (I) P.LTD. 4,22,38,370 6 MOHIT INTERNATIONAL 2,12,81,605 TOTAL 19,46,54,612 THE ASSESSEE DULY COMPLIED WITH THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT. THEREAFTER, THE AO FURTHER ISSUED STATUTORY NOTICES WHICH WERE DULY SERVED ON THE ASS ESSEE ALONG WITH QUESTIONNAIRE AND THE AO REQUIRED THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES FROM THE ABOVE PAR TIES. HOWEVER, THE NOTICES WERE NOT COMPLIED WITH BY THE ASSESSEE. THE AO THEREAFTER RECORDED A FINDING OF FACTS IN TH E ASSESSMENT ORDER THAT FOLLOWING A SEARCH AND SEIZURE ACTION CA RRIED OUT IN THE CASE OF PRAVEEN KUMAR JAIN GROUP ON 01.10.2013 AND IN VIEW OF THE STATEMENT OF SHRI PRAVEEN KUMAR JAIN AD MITTING THAT HE AND HIS ASSOCIATED CONCERNS WERE ENGAGED IN PROV IDING ACCOMMODATION ENTRIES IN THE NATURE OF BOGUS UNSECU RED LOANS, BOGUS SHARE APPLICATION MONEY, BOGUS SALES AND LONG TERM CAPITAL GAIN ETC. ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT ASSESSEE IS AS BENEFICIARY OF THE SAID ENTRIES BY TAKING BOGUS PURCHASE BILLS TO THE TUNE OF RS.19,46,54,612 /-. THOUGH THE ASSESSEE FILED COPIES OF BILLS, INVOICES AND PR OOF OF PAYMENTS BUT THE AO TREATED THE SAME AS BOGUS ACCOMMODATION ENTRIES, HOWEVER, ACCEPTED THE PLEA OF THE ASSESSEE THAT WIT HOUT MAKING PURCHASES THE CORRESPONDING SALES WERE NOT POSSIBLE AND HENCE ONLY APPLIED A GP RATE @ 12.5% ON THE SAID BOGUS PU RCHASES IN ORDER TO BRING THE SAME TO TAX BY REJECTING THE BOO KS OF ACCOUNTS UNDER SECTION 143(3) OF THE AND MAKING AN ADDITION OF RS.2,43,31,827/-. ITA NOS.4380 & 4381/M/2017 CO NO.167/M/2018 M/S. RISHAB APPARELS PVT. LTD. 4 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE AS REPRODUCED IN PARA 6.2 OF THE APPELLATE ORDER BY OBSERVING AND HOLDING AS UNDER: 6.3.1 I HAVE CONSIDERED THE ENTIRE FACTS AND CIRCU MSTANCES OF THE CASE AND HAVE CAREFULLY CONSIDERED THE FINDING OF AO, RIVAL SUBMI SSION OF THE APPELLANT AND EVIDENCE ON RECORD. 6.3.2 THE APPELLANT IS ENGAGED IN THE BUSINESS OF T RADING IN TEXTILE PRODUCTS. THE SALES COMPRISES OF EXPORTS AND DOMESTIC. THE SAID S ALES ARE WELL SUPPORTED BY THE DOCUMENTS AND HENCE, THERE IS NO DOUBT ABOUT THE SA ME. THE SAID FACT HAS BEEN ACCEPTED BY THE AO AND HAS RAISED NO DISPUTE AS TO SALES. IN RESPECT OF PURCHASES OF THE GOODS IS CONCERNED THE APPELLANT HAS SUBMITTED VARIOUS DETAILS. THE DETAILS SHOWS THAT THE APPELLANT HAS BEEN MAINTAINING STOCK RECORDS WHICH SHOWS THE QUANTITY OF GOODS INWARD AND OUTWARD AND STOCK IN H AND AND THE VALUATION THEREOF. THE TAX AUDIT REPORT CONFIRMS THE SAME. THE BOOKS O F ACCOUNT HAVE BEEN AUDITED AND THAT THERE IS NO ADVERSE FINDING IN THE ASSESSM ENT ORDER AGAINST THE TAX AUDIT REPORT. 6.3.3 IN RESPECT OF PURCHASES FROM THE BOGUS PARTIES THE APPELLANT HAS SUBMITTED DETAILS OF PURCHASES ALONG WITH PAYMENT DETAILS. TH E GOODS PURCHASED ARE REFLECTED IN THE STOCK RECORDS. THE PAYMENT MADE TO THE SAID 6 PARTIES IS REFLECTED IN THE BANK STATEMENTS AGAINST THEIR RESPECTIVE NAMES. IT SHOWS THAT PAYMENTS HAVE BEEN MADE IN THE REGULAR COURSE OF BUSINESS FROM AVAILAB LE FUNDS AND THAT INSTANCES OF CASH DEPOSITED AGAINST PAYMENT MADE TO THE BOGUS PA RTIES IS NOT NOTICED. 6.3.4 ON THE FACE OF THE RECORDS AND DETAIL S SUBMITTED THERE IS NOTHING INCRIMINATING THAT CAN BE DRAWN TO INFER THAT THE S AID TRANSACTIONS IS MERELY BOGUS PURCHASES AND NOT GENUINE. MORE IMPORTANTLY THERE N O DIRECT EVIDENCE WHICH HAS BEEN BROUGHT ON RECORD BY THE AO. NO NEXUS HAS BEEN ESTABLISHED AS TO CIRCULATING OF FUNDS OR THAT CASH WAS PAID TO THIRD PARTIES FOR ACTUAL PURCHASE AND THAT CASH HAS BEEN RECEIVED ON ISSUE OF CHEQUES. 6.3.5 THE A.O. HAS MERELY BASED ON THE INFORMATION RECEIVED FROM THE DDIT HAS FORMED OPINION THAT THE APPELLANT IS ONE OF THE BEN EFICIARIES WHO HAS MADE ALLEGED BOGUS PURCHASES. THE AO HAS STATED THAT ACTUAL PURC HASE HAS BEEN MADE BUT FROM THIRD PARTY AS AGAINST THE PAPER PURCHASES FROM THE SAID 6 PARTIES. IN SUPPORT OF THE CONTENTION BY THE AO NO DIRECT EVIDENCE HAS BEEN BR OUGHT ON RECORD. 6.3.6(I) IN THE CASE 6.3.6(II) THE GUJARAT HIGH COURT IN THE CASE .. 6.3.6(III) THE JURISDICTIONAL ITAT, MUMBAI . ITA NOS.4380 & 4381/M/2017 CO NO.167/M/2018 M/S. RISHAB APPARELS PVT. LTD. 5 6.3.6(IV) THE JURISDICTIONAL ITAT, MUMBAI.. 6.3.6(V) THE JURISDICTIONAL ITAT, MUMBAI.. 6.3.7 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, VARIOUS REFERENCES AND JUDICIAL PROPOSITIONS, IT CAN BE CONCLUDED THAT THE AO HAS NOT BEEN ABLE TO PROVE THAT THE PURCHASES MADE FROM THE SAID 6 PARTIES ARE BOGUS AND THAT THE SAME ARE PAPER TRANSACTIONS. THEREFORE, THE DISALLOWANCE MAD E BY THE AO OF RS. 2,43,31,827/-IS DELETED. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER, WE FIND THAT T HE ASSESSEE HAS AVAILED BOGUS PURCHASE BILLS FROM 6 PARTIES DE TAILS WHEREOF HAVE BEEN APPENDED HEREINABOVE. THE SAID FACT CAME TO LIGHT WHEN THE SEARCH AND SEIZURE OPERATION WAS CONDUCTED ON SHRI PRAVEEN KUMAR JAIN AND ASSOCIATED CONCERN AND SHRI PRAVEEN KUMAR JAIN ADMITTED IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT THAT HE AND HIS ASSOCIATED CONCER NS WERE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY IN THE FORM OF LOANS, SHARE APPLICATION MONEY, BOGUS PURCHASE BILLS ETC. THE AO ESTIMATED THE INCOME OF THE SAID BOGUS PURCHASES @ 12.5% WHICH WERE DELETED BY LD. C IT(A) BY HOLDING THAT THE PURCHASES FROM SIX PARTIES WOULD N OT BE PROVED AS BOGUS BY THE AO. WE ARE NOT IN AGREEMENT WITH T HE CONCLUSION DRAWN BY THE LD. CIT(A) IN VIEW OF THE F ACT THAT THESE ACCOMMODATION TRANSACTIONS ARE VERY COMMON IN THE M ARKET AND IN THE PRESENT CASES THE HAWALA OPERATOR HIMSEL F ADMITTED TO HAVE BEEN ENGAGED IN PROVIDING ONLY ACCOMMODATIO N ENTRIES WITHOUT ANY ACTUAL BUSINESS. IN SUCH CASES OF AVA ILING BOGUS PURCHASE ENTRIES, THE ASSESSEE NORMALLY BUYS GOODS FROM THE GREY MARKET AND THEN CARRYING OUT THE SALES. IN TH E WHOLE PROCESS THE ASSESSEE NORMALLY MAKES SEVERAL TYPES O F SAVINGS SUCH AS VAT AND VARIOUS OTHER EXPENSES AND THEREFORE SOME ADDITION HAS TO BE MADE IN ORDER TO BRING TO TAX SU CH SAVINGS BY ITA NOS.4380 & 4381/M/2017 CO NO.167/M/2018 M/S. RISHAB APPARELS PVT. LTD. 6 THE ASSESSEE DESPITE THE FACT THAT PROFIT ON SUCH P URCHASES IS OFFERED IN THE RETURN OF INCOME BY THE ASSESSEE. UN DER THE PRESENT FACTS AND CIRCUMSTANCES IT WOULD BE REASONA BLE TO APPLY A RATE OF 3% ON SUCH PURCHASES. ACCORDINGLY, WE SE T ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO MAKE AN AD DITION @ 3%. 7. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO.4381/M/2017 (A.Y. 2008-09) 8. THE ISSUE INVOLVED IN THE PRESENT APPEAL IS IDEN TICAL TO THE ONE AS STATED ABOVE IN ITA NO.4380/M/2017 FOR A.Y. 2007-08. THEREFORE, OUR FINDING IN ITA NO.4380/M/2017 FOR A. Y. 2007-08, MUTATIS MUTANDIS WOULD APPLY TO THIS APPEAL AS WELL . ACCORDINGLY THE APPEAL OF THE REVENUE IS PARTLY ALL OWED. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A S WELL AS CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.01.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 15.01.2019. * 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.