MR. MIHIR NITIN BHANDARI, Mumbai V. ITO 19(2)(3), Mumbai

ITA 4544/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0382 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 04-07-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY J SETHI
• Assessee Lawyers: KIRIT MEHTA
• Keywords: Bogus purchase; Set aside
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4544/MUM/2019 ASSESSMENT YEAR: 2009-10 MR. MIHIR NITIN BHANDARI, FLAT NO. 48, B WING, 8 TH FLOOR, NAVDARYA MAHAL CHS LTD., NAPEANSEA ROAD, MUMBAI-400 006. VS. INCOME TAX OFFICER-19(2)(3), ROOM NO. 221, 2 ND FLOOR, MATRU MANDIR BUILDING, TARDEO, MUMBAI-400 007. PAN NO. AACPB 5636 M APPELLANT RESPONDENT ASSESSEE BY : MR. KIRIT MEHTA, AR REVENUE BY : MR. SANJAY J. SETHI, DR DATE OF HEARING : 02/03/2021 DATE OF PRONOUNCEMENT : 16/03/2021 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE I NCOME TAX ACT 1961, (THE ACT). 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE SUBMITS THAT HE WOULD NOT LIKE TO PRESS THE 1 ST AND 3 RD GROUND OF APPEAL. CONSIDERING THE SUBMISSION OF THE ASSESSEE, WE DISMISS THE 1 ST AND 3 RD GROUND OF APPEAL AS NOT PRESSED. WE THEN TURN TO THE 2 ND GROUND OF APPEAL WHICH READS AS UNDER : MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 2 2. ADDITION ON ACCOUNT OF ALLEGED NON-GENUINE PURC HASES THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER IN MAKING AN ADDITION OF A SUM OF RS.1,06,900/-, BEING 8 PERCENT OF ALLEGED NON-GENUINE PURCHASES OF RS.13,26,130/-. THE APPELLANT CONTENDS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE IMP UGNED ADDITION INASMUCH AS THERE ARE NO BOGUS PURCHASES MADE BY THE APPELLANT AND THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD IN RESPECT O F THE SAME AND HENCE, THE IMPUGNED ADDITION OUGHT TO BE DELETED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009- 10 ON 12.11.2009 DECLARING TOTAL INCOME OF RS.2,68,540/-. ON RECEIPT OF INFORMATION FROM THE DIRECTOR GENERAL OF INCOME TAX (INV), MUMBAI THAT T HE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS OF RS.13,13,000/- FRO M M/S MAYUR EXPORTS (A CONCERN OF SHRI BHANWARLAL JAIN & ORS) DURING TH E FINANCIAL YEAR 2008- 09, THE ASSESSING OFFICER (AO) REOPENED THE ASSESSM ENT BY ISSUING NOTICE U/S 148 OF THE ACT. DURING THE COURSE OF REASSESSME NT PROCEEDINGS, THE ASSESSEE FILED BEFORE THE AO (I) COPIES OF INVOICES OF PURCHASES AND CORRESPONDING SALES, (II) COPIES OF BANK STATEMENTS EVIDENCING PAYMENTS MADE THROUGH BANKING CHANNELS BY ISSUING ACCOUNT PA YEE CHEQUES IN RESPECT OF THE ABOVE PARTY, HIGHLIGHTING THE RELEVA NT ENTRIES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE S UBMISSION OF THE ASSESSEE ON THE GROUND THAT IN THE BOOKS OF ACCOUNT S OF THE ASSESSEE, THE PURCHASES MADE FROM THE ABOVE PARTY REMAINED UNVERI FIABLE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HE ESTIMAT ED PROFIT @ 8% OF THE DISPUTED PURCHASES OF RS.13,26,130/- AND THUS MADE AN ADDITION OF RS.1,06,090/-. MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 3 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT VIDE ORDER DATED 03.05.2019, THE LD. CIT(A) CONFIRMED THE ABOVE DISALLOWANCE MADE BY THE AO BY OBSERVING THAT : 6.3.32 AS NARRATED EARLIER, THE AO IN THIS CASE HA S HELD THAT THE PARTIES FROM WHICH PURCHASES WERE MADE BY THE APPELLANT WER E FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH IT WAS NOT PRODUCED DU RING THE ASSESSMENT PROCEEDINGS. NOT HAVING DOUBTED THE CONSUMPTION/SAL ES, THE MOTIVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASES PRICE SO AS TO SUPPRESS TRUE PROFITS. CONSIDERING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CASE LAWS CITED (SUPRA), I ESTIMATE THAT THE ADDITION MA DE BY THE AO IS CORRECT. THIS ESTIMATION IS IN ADDITION TO THE GP SHOWN BY THE AP PELLANT. THUS, ADDITION OF RS.1,06,090/- (BEING 8% OF RS.13,26,130/-) IS CONFI RMED. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE PAYMENTS TO MAYUR EXPORTS HAVE BEEN DULY MADE VIA ACCOUNT PA YEE CHEQUES RS.11,89,000/- ON 10.11.2008 BY CHEQUE NO. 507209 A ND RS.1,37,130/- ON 07.03.2009 BY CHEQUE NO. 507210. IT IS FURTHER STAT ED THAT THE ASSESSEE HAS FILED HIS MVAT RETURNS REGULARLY FOR THE FINANCIAL YEAR 2010-11 AND HAS PAID THE DIFFERENTIAL MVAT AFTER CLAIMING THE ELIGIBLE I NPUT TAX CREDIT ON THE PURCHASES MADE FROM MAYUR EXPORT. THUS IT IS STATED THAT THE PROFIT FROM THE SAID TRANSACTION HAS BEEN RECORDED IN THE PROFIT AN D LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2009 AND SAID PROFIT HAS ALSO BEEN REPORTED IN THE RETURN OF INCOME OF THE YEAR UNDER CONSIDERATION. THE LD. COUNSEL HAS MAINLY PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT V. MOHAMMAD HAJI ADAM & CO (ITXA NOS. 1004, 1013, 1059, 1064, 1075, 1095, 120 4 AND 1012 OF 2016 DATED 11.02.2019. MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 4 6. ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE E STIMATION OF PROFIT @ 8% DONE BY THE AO AND THEN AFFIRMED BY THE LD. CIT( A), BEING REASONABLE BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE DE CISION IN M/S MOHOMMAD HAJI ADAM & CO . (SUPRA) RELIED ON BY THE LD. COUNSEL MERITS CONSI DERATION. IN THAT CASE, DURING THE COURSE OF SURVEY OPERATIONS I N THE CASE OF ENTITIES FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASE S, THE DEPARTMENT COLLECTED INFORMATION SUGGESTING THAT SUCH PURCHASE S WERE NOT GENUINE. THE AO NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES OF FABRICS WORTH RS.29.41 LAKHS FROM THREE GROUP CONCERNS, NAMELY M/S MANOJ M ILLS, M/S ASTHA SILK INDUSTRIES AND M/S SHRI RAM SALES AND SYNTHETICS. O N THE BASIS OF STATEMENT RECORDED DURING SUCH SURVEY OPERATIONS, THE AO CONC LUDED THAT THE SELLING PARTIES WERE ENGAGED ONLY IN SUPPLYING THE BOGUS BI LLS, THAT THE GOODS IN QUESTION WERE NEVER SUPPLIED TO THE ASSESSEE, AND T HEREFORE, THE PURCHASES WERE BOGUS. HE, THEREFORE, ADDED THE ENTIRE SUM IN THE HANDS OF THE ASSESSEE AS ITS ADDITIONAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO ACCEPTED THE FACTUM OF PURCHASES BE ING BOGUS. HOWEVER, HE COMPARED THE PURCHASES AND SALES STATEMENTS OF THE ASSESSEE AND OBSERVED THAT THE DEPARTMENT HAD ACCEPTED THE SALE, AND THER EFORE, THERE WAS NO REASON TO REJECT THE PURCHASES, BECAUSE WITHOUT PUR CHASES THERE CANNOT BE SALES. HE, THEREFORE, HELD THAT UNDER THESE CIRCUMS TANCES THE AO WAS NOT CORRECT IN ADDING THE ENTIRE AMOUNT OF PURCHASES AS THE ASSESSEES INCOME. HE, THEREFORE, DELETED THE ADDITION REFRESHING IT T O 10% OF THE PURCHASE AMOUNT. HE ALSO DIRECTED THE AO TO MAKE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE AS PER THE BOOKS OF A CCOUNTS ON UNDISPUTED MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 5 PURCHASES AND GROSS PROFIT ON SALES RELATING TO THE PURCHASES MADE FROM THE SAID THREE PARTIES. THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. THE REVENUE ALSO CARRIED THE ISSUE BEFORE THE TRIBUNAL. THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE PARTLY AND DISMISSED THAT OF THE REVENUE. THE TRIBUNAL NOTED THAT THE CIT(A) HAD NOT GIVEN ANY RE ASONS FOR RETAINING 10% OF THE PURCHASES BY WAY OF AD-HOC ADDITIONS. THE TR IBUNAL, THEREFORE, DELETED SUCH ADDITIONS, BUT RETAINED THE PORTION OF THE ORDER OF THE CIT(A) TO THAT EXTENT HE PERMITTED THE AO TO TAX THE ASSESSEE ON THE BASIS OF DIFFERENCE IN THE GP RATES. IN FURTHER APPEAL BEFORE THE HONB LE BOMBAY HIGH COURT, THE REVENUE REFERRED TO THE DECISION OF THE DIVISION BE NCH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES L TD. V. DCIT IN TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20 .06.2016 AND ALSO POINTED OUT THAT THE SLP AGAINST SUCH DECISION WAS DISMISSED BY THE HONBLE SUPREME COURT. THE HONBLE BOMBAY HIGH COURT HELD : 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE 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 OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN C ONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE' S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC C ANNOT 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 BETW EEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHA SES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. T HE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTENT OF B RINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHAS ES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES ( SUPRA) CANNOT BE APPLIED MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 6 WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAP H 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- 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 ASSE SSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RE CORDED 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 TAK EN 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 SEL LING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES TO 5.66 %. THEREF ORE, 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 PARTIALLY IN FAVOUR OF THE ASSESSEE AND PA RTIALLY IN FAVOUR OF THE REVENUE. WE FIND THAT THE FACTS IN THE INSTANT CASE ARE SIMI LAR TO THE ABOVE DECISION. FOLLOWING THE SAME, WE SET ASIDE THE ORDE R OF THE LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON DISPUTED PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16/03/2021 SD/- SD/- (VIKAS AWASTHY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED:16/03/2021 RAHUL SHARMA, SR. P.S. MR. MIHIR N. BHANDARI ITA NO. 4544/M/2019 7 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// (DY./ASSISTANT REGISTRAR) ITAT, MUMBAI