M/s. CHANDRA EXPORTS, MUMBAI V. INCOME TAX OFFICER 19(1)(3), MUMBAI

ITA 4444/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6828 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 10-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Keywords: Bogus purchase; Search and seizure; Accommodation entries; Reassessment proceedings; Set aside
• Section: 143(3); 133(6); 143(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4444/MUM/2018 ASSESSMENT YEAR: 2008 - 09 CHANDRA EXPORTS 9 - 46, SHYAM NIWAS, BHULABHAI DESAI ROAD, WARDEN ROAD, MUMBAI - 400026. VS. INCOME - TAX OFFICER 19(1)(3), MATRUMANDIRTARDEO ROAD, MUMBAI - 400007. PAN NO. AAAFC0992K APPELLANT RESPONDENT ASSESSEE BY : MR. NEELKANTH KHANDELWAL , AR REVENUE BY : MR. S.K. BEPARI , DR DATE OF HEARING : 0 5/12 /2018 DATE OF PRONOUNCEMENT : 28/02/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 9 [IN SHORT CIT(A)], MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1. THE C I T(A) ERRED IN UPHOLDING THE ACTION OF THE INCOME - TAX OFFICER - 19(1)(3), MUMBAI (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) IN ISSUING NOTICE UNDER SECTION 148 OF THE ACT. CHANDRA EXPORTS ITA NO. 4444/MUM/2018 2 THE APPELLANTS CONTEND THAT ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ISSUE OF NOTICE UNDER SECTION 148 IS WITHOUT JURISDICTION, BAD IN JAW AND HENCE, NEEDS TO BE QUASHED. 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN CONFIRMING THE ADDITION TO THE TUNE OF RS.2,81,572, BEING 3% OF PURCHASES AGGREGATING RS.93,85,734 DEBITED TO THE PROFIT AND LOSS ACCOUNT ON THE GROUND THAT THE SAID PURCHASER ARE BOGUS. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ACTION OF THE ASSESSING OFFICER INASMUCH AS THE CIT(A) HAS NOT CORRECTLY APPRECIATED THE FACTS IN ITS ENTIRETY; THE ADDITION ON FACTS AND I N LAW, REQUIRES M BE DELETED . 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSE SSEE - FIRM FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2008 - 09 ON 24.09.2008 DECLARING TOTAL INCOME OF RS.44,070/ - . THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON SHRI RAJENDRA JAIN GR OUP ON 03.10.2013 BY THE DIRECTOR GENERAL OF INCOME TAX (INVESTIGATION), MUMBAI [IN SHORT DGIT ]. THE SEARCH ACTION RESULTED IN COLLECTION OF EVIDENCE WHICH SHOWS THAT THE ABOVE GROUP CONCERN, THROUGH A WEB OF BENAMI CONCERN OPERATED BY THEM , WAS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES OF BOGUS SALES AND UNSECURED LOANS TO VARIOUS BENEFICIARIES. AS PER THE INFORMATION RECEIVED BY THE AO, THE VARIOUS PARTIES WHO HAD ISSUED ACCOMMODATION ENTRIES TO THE ASSESSEE ARE AS UNDER: SR. NO. NAME OF THE ENTRY ISSUER AMOUNT IN RS. 1. AADI 62,23,240/ - 2. AVI 11,47,096/ - 3. MOULIMANI 14,15,403/ - CHANDRA EXPORTS ITA NO. 4444/MUM/2018 3 4. SPARSH 5,99,995/ - TOTAL 93,85,734/ - ON THE BASIS OF ABOVE FACTS, THE AO REOPENED THE ASSESSMENT WHICH WAS PROCESSED EARLIER U/S 143(1) OF THE ACT. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AR OF THE ASSESSEE VIDE LETTER DATED 18.08.2015 AND 10.10.2015 FURNISHED VARIOUS DETAILS IN RESPONSE TO THE QUESTIONNAIRE SEN T BY THE AO. ALSO THE ASSESSEE FILED ANOTHER REPLY VIDE LETTER DATED 28.12.2015 , IN RESPONSE TO THE SHO W - CAUSE NOTICE ISSUED BY THE AO. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID EXPLANATION FOR THE REASON THAT DURING THE COURSE OF SEARCH ACTION, IT REVEALED THAT THE SAID JAIN GROUP WAS EXCLUSIVELY ENGAGED IN THE BUSINESS OF ISSUING NON - GENUINE PURCHASE BILLS AND ALSO UNSECURED LOAN ACCOMMODATION ENTRIES TO VARIOUS INTERESTED PARTIES AND THE ASSESSEE HAD TAKEN ACCOMMODATION ENTRIES TO THE TUNE OF RS.93,85,734/ - FROM THE ABOVE GROUP. THEREFORE, THE AO TREATED THE PROFIT EMBEDDED IN SUCH PURCHASES AS THE IN COME OF THE ASSESSEE AND ESTIMATED IT @ 8% OF RS.93,85,734/ - . ACCORDINGLY, HE MADE AN ADDITION OF RS.7,50,859/ - . 4. IN APPEAL, THE LD. CIT(A) DISMISSED THE GROUND RAISED BY ASSESSEE AGAINST REOPENING THE ASSESSMENT ON THE REASON THAT THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE ACT, T HEN IT WAS REOPENED BY THE AO BY ISSUING NOTICE U/S 148. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN ACIT V. RAJESH JHAVERI STOCK BROKERS PVT. LTD . 291 ITR 500, THE LD. CIT(A) DISMIS SED THE SAID GROUND OF APPEAL. CHANDRA EXPORTS ITA NO. 4444/MUM/2018 4 ON MERITS THE LD. CIT(A) HELD AS UNDER: IN THE LIGHT OF THE ABOVE, ONE HAS TO SEE IN THE PRESENT CASE, WHICH IS IN THE LINE OF TRADING IN DIAMONDS, WHAT IS THE CORRECT PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES. IN THE CASE OF DIAMOND TRADE, GENERALLY THE RATE OF VAT IS STATED TO BE CHARGED @ 1% ON THE PURCHASES MADE FROM MUMBAI AND ON THE PURCHASES MADE UNDER FROM H NO VAT IS LEVIED DUE TO EXPORT COMMITMENT AND PURCHASES MADE FROM SURAT ALSO THERE IS NO VAT LEVIED . COMING TO THE PROFIT MARGIN IN THE TRADE, THE TASK FORCE GROUP FOR DIAMOND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @ 2% OF TRADING ACTIVITY AND @ 3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. IT IS ALSO ASCERTAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP WING IS CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%. IN VIEW OF THE SAME, CONSIDERING THE PROFIT MARGIN IN THIS SECTOR I.E. AROUND 2 T O 3 PERCENT AND THE TAXES SAVED AROUND 1%, I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS SUSTAINED TO THE EXTENT OF 3% OF THE PURCHASES MADE, AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES FROM THE FOUR PARTIES BELONGING TO SHRI RAJENDRA JAIN GR OUP CONCERNS, THAT WILL MEET THE ENDS OF JUSTICE. IN VIEW OF THE SAME, I DIRECT THE AO TO RESTRICT THE ADDITION @ 3% OF RS.93,85,734/ - I.E. THE PURCHASES MADE FROM M/S AADI, M/S MAULIMANI, M/S AVI AND M/S SPARSH. THIS GROUND OF APPEAL IS THEREFORE PARTLY A LLOWED. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HAD SUBMITTED CORROBORATIVE EVIDENCE BEFORE THE AO IN THE FORM OF (I) PURCHASE INVOICES FROM THESE PARTIES, (II) CONFIRMATION STATEMENT/LEDGER ACCOUNT OF THE ASSESSEE IN THE B OOKS OF THESE PARTIES, (III) FINANCIAL STATEMENTS (INCLUDING PURCHASE AND SALES SUMMARY AND BANK STATEMENTS) FOR THE RELEVANT PERIOD OF THESE PARTIES, (IV) INCOME TAX RETURN OF THE RELEVANT PERIOD OF THESE PARTIES, (V) AFFIDAVIT IN THIS CONTEXT CHANDRA EXPORTS ITA NO. 4444/MUM/2018 5 FROM THESE PARTIES, (VI) DETAILS OF PAYMENT MADE THROUGH ACCOUNT PAYEE CHEQUE TOWARDS THESE PURCHASES AND (VII) QUANTITATIVE DETAILS. IT IS THUS SUBMITTED BY HIM THAT ADDITIONS ONLY ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX/OTHER DEPARTMENT IS NOT SUS TAINABLE. THE LD. COUNSEL FILES A DECISION IN THE CASE OF PR. CIT V. MARG LTD. (2017) 84 TAXMANN.COM 52 (MADRAS) AND HARYANA JWELLERS P. LTD. V. ITO (ITA NO. 2315/DEL/2018 FOR AY 2013 - 14). FURTHER, THE LD. COUNSEL FILES A COPY OF THE REPLY FILED BEFORE T HE CIT(A). ALSO OUR ATTENTION IS DRAWN TO THE STATEMENT RECORDED FROM SHRI RAJENDRA JAIN AND IT IS STATED THAT IT DOES NOT MENTION THE NAME OF THE ASSESSEE. STATING THAT THE ASSESSEE HAD FILED ALL CORROBORATIVE EVIDENCE BEFORE THE AO AND NO SPECIFIC IR REGULARITY BEING LOCATED BY THE AO, THE LD. COUNSEL SUBMITS THAT THE DISALLOWANCE RESTRICTED BY THE CIT(A) TO 3% OF SUCH PURCHASES OF RS.93,85,734/ - BE DELETED. 6. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A) STATING THAT IN T HE STATEMENT RECORDED DURING THE COURSE OF SEARCH SHRI RAJENDRA JAIN ADMITTED THAT THEY WERE ENGAGED IN THE BUSINESS OF BILL SHOPPING THROUGH ALL THE CONCERNS AND THEY WERE MAINLY LENDING NAMES OF VARIOUS CONCERNS TO THE REAL IMPORTER OF DIAMONDS. FURTHER IT IS MENTIONED BY THE LD. DR THAT THE CIT(A) HAS ONLY RESTRICTED THE PROFIT ELEMENT TO 3% OF SUCH PURCHASES OF RS.93,85,734/ - AND THE SAME MAY BE CONFIRMED. CHANDRA EXPORTS ITA NO. 4444/MUM/2018 6 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS MENTIONED EARLIER THE AO REOPENED THE ASSESSMENT WHICH WAS PROCESSED U/S 143(1) OF THE ACT. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA), THE HONBLE SUPREME COURT HELD THAT INTIMATION U/S 143(1)(A) IS NOT AN ASSESSMENT AND HELD VALID THE NOTICE ISSU ED U/S 148. IN THE CASE OF KONE ELEVATOR INDIA P. LTD. V. ITO 340 ITR 454 (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 I S TAXABLE INCOME HAS ESCAPED ASSESSMENT AND THE ASSESSEES PLEA THAT NO FRESH MATERIAL BEFORE THE AO WARRANTING REOPENING, IS NOT RELEVANT. IN VIEW OF THE ABOVE FACTUAL SCENARIO AND POSITION OF LAW, THE 1 ST IS DISMISSED. TURNING TO THE MERIT OF THE CASE, WE FIND THAT THE ASSESSEE VIDE LETTER DATED 28.12.2015 HAD WRITTEN TO THE AO STATING THAT THE NOTICE ISSUED U/S 133(6) TO M/S AADI, M/S AVI, M/S MOULIMANI AND M/S SPARSH HAVE BEEN REPLIED BY THE SAID PARTIES ENCLOSING THE CONFIRMATION, ACKNOWLEDGEMENT OF INCOME TAX RETURN FILED ALONG WITH BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND PROOF OF SALE. INSTEAD OF VERIFYING THOSE DETAILS, THE AO RELIED ON THE STATEMENT OF SHRI RAVINDRA JAIN, WHERE THERE IS NO MENTION OF THE NAME OF THE ASSESSEE AND ESTIMATED THE PROFIT @ 8% OF PURCHASES OF RS.93,85,734/ - WHICH HAS BEEN REDUCED TO 3% BY THE LD. CIT(A) . IN THE INSTANT CASE, THE REPLY FILED BY M/S AADI, M/S AVI, M/S MOULIMANI AND M/S SPARSH HAS RELEVANCE WHICH HAS BEEN IGNORED BY THE A O. CHANDRA EXPORTS ITA NO. 4444/MUM/2018 7 THUS WE FIND THAT ONCE THE ONUS SHIFTED TO THE AO, INSTEAD OF VERIFYING THOSE DETAILS, HE HAS JUMPED INTO AN ESTIMATION WHICH IS UNCALLED FOR. SIMILARLY, THERE IS NO MERIT IN THE ORDER OF THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO 3% OF SUCH PURCH ASES. IN VIEW OF THE ABOVE REASONS , WE SET ASIDE THE ORDER OF THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO 3% OF SUCH PURCHASES AND ALLOW THE 2 ND GROUND OF APPEAL. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8/02/2019. SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/02/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI