KAVITA HULE, MUMBAI V. INCOME TAX OFFICER 26(2)(1), MUMBAI

ITA 44/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3384 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Accommodation entries; Assessment record
• Section: 133(6); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER AND ITA NO.44/MUM/2018 ASSESSMENT YEAR-2009-10 KAVITA HULE, D-304, SUNSHRUTI, SAKIVIHAR ROAD, ANDHERI (EAST), MUMBAI-400072 / VS. ITO - 26(2)(1), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 PAN NO. ABPPH4244K ( / ASSESSEE) ( / REVENUE) / ASSESSEE BY NONE / REVENUE BY SHRI MANOJ KUMAR SINGH / DATE OF HEARING : 24/04/2019 / DATE OF ORDER: 25/04/2019 / O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT THE LEARNED CIT(A)-38, MUMBAI, DATED 23/06/2017, HAS ERRED IN SUSTAINING 12.5 PERCENT DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. 2. THE ASSESSING OFFICER IN THIS CASE HAS MADE 25 P ERCENT ADDITION ON ACCOUNT OF BOGUS PURCHASE. 3. THE BRIEF FACTS IN THIS REGARD ARE AS UNDER:- ITA NO.44/MUM/2018, KAVITA HULE 2 THE APPELLANT IS AN INDIVIDUAL AND IS PROPRIETOR OF M /S. RMC LABORATORIES, ENGAGED IN THE BUSINESS OF TRADING IN PHARMACEUTICALS, BULK DRUGS AND ALLIED PRODUCTS. THE RETURN OF INCOME FOR AN 2009-10 WAS FILED BY THE APPELLANT ON 24/09/2009 DECLARING THE TOTAL INCOME OF RS.5,05,430/ -. SUBSEQUENTLY, THE INFORMATION HAS BEEN RECEIVED FROM DCIT(INV) WING, MUMBAI THROUGH CIT-21, MUMBAI, FORW ARDING THERE WITH A LIST OF CONCERNS WHICH HAVE BEEN INVESTIGA TED BY THE SALES TAX AUTHORITIES AND HAVE HELD TO HE AS HAWALA BILLERS. THE NAMES OF THE PERSONS WHO HAVE OBTAINED TH E BOGUS BILLS FROM SUCH HAWALA BILLERS ALONGWITH THE TRANSACTIO N DETAILS OF EACH PERSON HAS ALSO BEEN RECEIVED BY THE AO. TH E SALES TAX AUTHORITY DISPLAYED THE NAMES OF THESE HAWALA DEALERS ON THE WEBSITE OF SALES TAX DEPARTMENT OF MAHARASHTRA GOVERNM ENT, WHO HAS ONLY ISSUED BILLS WITHOUT ANY DELIVERY OF GOO DS. FURTHER ON PERUSAL OF THE ASSESSMENT RECORDS VIS-A-VI S THE INFORMATION, IT WAS OBSERVED BY THE AO THAT DURING F.Y 2 008- 09 RELEVANT TO AN 2009-10, THE APPELLANT HAD OBTAINED B OGUS BILLS/ ACCOMMODATION ENTRIES FROM 8 HAWALA DEALERS TO THE EXTENT OF RS.2,80,01,614/- IN RESPECT OF PURCHASES WH ICH WERE NOT GENUINE. IN VIEW OF THE ABOVE, THE AO OBSERVED THAT THERE IS INFL ATION OF EXPENDITURE RESULTING IN ESCAPEMENT OF INCOME TO THE EXTE NT OF RS.2,80,01,614/- FOR AY 2009-10 IN THE CASE OF THE AP PELLANT AND THEREFORE AFTER VERIFYING THE AFORESAID INFORMATIO N, ALE CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS REOPEN ED BY THE AO AFTER RECORDING THE REASONS FOR REOPENING AND NOTICES U/S. 148 OF THE 1.1' ACT WAS ISSUED TO THE APPELLANT. ITA NO.44/MUM/2018, KAVITA HULE 3 IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE IT A CT, THE APPELLANT HAS REQUESTED TO TREAT THE ORIGINAL RETURN OF I NCOME FILED TO BE FILED IN RESPONSE TO NOTICE U/S 148 OF THE 1.T. ACT & REQUESTED TO PROVIDE THE REASONS FOR REOPENING THE CAS E WHICH WERE PROVIDED BY THE AO. HOWEVER, IN ORDER TO VERIFY THE GENUINENESS OF THE PUR CHASES, THE AO ISSUED NOTICE U/S. 133(6) OF THE I.T ACT, TO THES E PARTIES ON THE ADDRESSES PROVIDED BY THE APPELLANT. THE SAID NOTICES WERE RETURNED BY THE POSTAL AUTHORITY WITH THE REMARKS NOT KNOWN/LEFT'. THESE FACTS WERE BROUGHT TO THE NOTICE OF THE APPELLANT BY THE AO VIDE SHOW CAUSE NOTICE DATED 02.11.2015. THE APPEL LANT WAS ASKED TO PRODUCE THE PARTIES ALONGWITH BOOKS OF AC COUNTS. THEREAFTER THE AO ACCORDED OPPORTUNITY TO THE APPELLA NT TO SUBSTANTIATE HIS CLAIM OF PURCHASES MADE FROM THE AFOR ESAID PARTIES BY PRODUCING THE SAID PARTIES ALONG WITH THE DETA ILS OR DOCUMENTS TO PROVE THE GENUINENESS OF THE PURCHASES MAD E FROM THESE PARTIES. HE WAS ALSO GIVEN A SHOW CAUSE NO TICE STATING THAT, IF HE IS NOT ABLE TO PRODUCE THE ALLEGED PA RTIES WITH THEIR BOOKS OF ACCOUNTS, THE AMOUNT INVOLVED WIL L BE TREATED AS BOGUS PURCHASE AND WILL BE ADDED TO THE TOTAL INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATIO N. IN RESPONSE TO THE ABOVE, THE APPELLANT PRODUCED THE COPY O F T.-LX INVOICE, LEDGER A/C OF HAWALA PURCHASES PARTIES, SAL ES INVOICE, BANK STATEMENT OF PAYMENTS MADE, COPIES OF ITEM-WISE STO CK REGISTER OF PURCHASES 8I, CORRESPONDING SALES FOR THE YEAR UNDER CONSIDERATION. THE AO CONTENDED THAT THE ASSESSEE SUBMITTE D INVOICES FROM THE ALLEGED BOGUS PARTIES BUT FAILED TO P RODUCE DELIVERY CHALLANS &, THAT NO SUPPORTING DOCUMENT FOR ITA NO.44/MUM/2018, KAVITA HULE 4 ACKNOWLEDGEMENT OF RECEIPT OF GOODS WAS PRODUCED BY T HE ASSESSEE TO CONFIRM THAT THE GOODS PURCHASED WERE ACTUAL LY DELIVERED TO HIM. FURTHER, THE AO OBSERVED THAT THE APPEL LANT HAD FAILED TO PRODUCE ANY OF THE SUPPLIERS OR ANY FUR THER MATERIAL EVIDENCE DESPITE GRANTING ENOUGH OPPORTUNITI ES TO PROVE CONTRARY TO THE SUPPLIER'S DISPOSITION BEFORE THE SALES TAX AUTHORITIES. IT IS A SETTLED LAW THAT ONUS LIES ON THE APPELLANT TO PROVE THE GENUINENESS OF ANY EXPENDITURE WHICH IS CLAIMED AS DEDUCTION IN COMPUTING ITS TAXABLE INCOME. THEREFORE, THE AO HELD THAT THE ONUS IN THE INSTANT CASE, SQUARELY LIES ON THE APPELLANT TO PROVE THE GENUINENES S OF THE PURCHASE OF MATERIALS MADE FROM THE AFORESAID PARTIES WHICH HAS BEEN ALLEGED AS BOGUS BY THE SALES TAX AUTHORITIES AND FACTS STATED ABOVE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CAS E, THE AC) OBSERVED THAT THESE PURCHASES ARE BOGUS AS THE ASSE SSEE HAS MERELY INDULGED IN INFLATING EXPENSES BY INTRODUC ING BOGUS PURCHASES. THE AO CONTENDED THAT THE AFORESAID PURCHAS ES THEMSELVES WERE NOT BOGUS BUT WERE MADE FROM OPEN MARK ET WHILE THE RELEVANT BILLS WERE OBTAINED FROM BOGUS BILL ING PARTIES TO WHOM CHEQUES WERE ISSUED BY THE ASSESSEE. THEREFOR E, THE AO ESTIMATED PROFIT @25 % ON THE ABOVE ALLEGED TRANSACTI ONS AMOUNTING TO RS.2,80,01,614/-, OVER AND ABOVE THAT DECL ARED BY THE APPELLANT WHICH WAS WORKED OUT AT RS.70,00,404/ AND WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE APPELLANT . 4. UPON ASSESSEES APPEAL, THE LD. CIT(A) RESTRICTE D THE DISALLOWANCE @ 12.5% 5. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. ITA NO.44/MUM/2018, KAVITA HULE 5 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF ASS ESSEE DESPITE NOTICE 7. UP ON CAREFUL CONSIDERATION, WE FIND THAT ASSESS EE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCES HAVE BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS. WE FIND THAT IN THIS CASE THE SALE5 HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PUR CHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POS SIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FRO M HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN TH E CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DATED 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCES FOR THE PURCHASES SAID T O BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE AL L THE SUPPLIES WERE TO GOVERNMENT AGENCY. 8. IN THIS REGARD WE ALSO NOTE THE DECISION OF HONOURABLE GUJARAT HIGH COURT IN THE CASE OF PR CIT VS T R KAPADIA IN TAX APPEAL NO 691 OF 2017. IN THIS CASE, THE ITA NO.44/MUM/2018, KAVITA HULE 6 HONOURABLE HIGH COURT HAS CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT OF ALLEGED BOGUS PURCHASE A S NECESSARY DOCUMENTARY EVIDENCE FOR THE PURCHASE WER E ON RECORD. THE SPECIAL LEAVE PETITION AGAINST THIS ORD ER HAS BEEN DISMISSED BY THE HONOURABLE SUPREME COURT IN ITS DE CISION DATED 4/ 5/ 2018 S L P CIVIL DIARY NO 12670/2018 9. IN THE PRESENT CASE THE FACTS OF THE CASE INDIC ATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MA KING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSE E SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION IN OUR OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 12.5 % DISALLOWAN CE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE. HOWEV ER IN THIS REGARD WE ALSO NOTE THAT ONLY THE PROFITS EARNED BY THE ASSESSEE ON THESE BOGUS PURCHASE TRANSACTION IS TO BE TAXED, HENCE, THE GROSS PROFIT ALREADY SHOWN BY THE ASSESSEE AND OFFE RED TO TAX SHOULD BE REDUCED FROM THE STANDARD 12.5% BEING DIR ECTED TO BE DISALLOWED ON ACCOUNT OF BOGUS PURCHASE. ACCORDI NGLY, WE MODIFY THE ORDER OF LEARNED CIT-A AND DIRECT THAT T HE DISALLOWANCE IN THIS CASE BE RESTRICTED TO 12.5 % O F THE BOGUS ITA NO.44/MUM/2018, KAVITA HULE 7 PURCHASES AS REDUCED BY THE GROSS PROFIT RATE ALREA DY DECLARED BY THE ASSESSEE ON THESE TRANSACTIONS. 10. IN THE RESULT THIS APPEAL FILED BY THE ASSESSE E STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/04/2019. SD/- S D/- (RAVISH SOOD) (SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 25/04/2019 F{X~{T? P.S/. .. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, 5. ( )*# !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) $%&', / ITAT, MUMBAI