ITO 17(1)(5), MUMBAI V. HITESH H SHAH, MUMBAI

ITA 4552/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0442 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 01-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAURABH DESPANDE
• Keywords: Bogus purchase; Unexplained expenditure; Corroborative evidences; Accommodation entries
• Section: 143(3); 133(6); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 4552/MUM/2016 (ASSESSMENT YEARS- 2009-10) ITO-17(1)(5), ROOM NO. 117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. HITESH H. SHAH PROP. HITESH ENTERPRISES, 8 K.M MEHTA BLDG., AHMEDABAD STRET, CARNAC BUNDER, MUMBAI-400009. PAN: AADPS7257C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAURABH DESPANDE (DR) REVENUE BY : MS. RUCHI M. RATHOD (AR) DATE OF HEARING : 07.08.2017 DATE OF PRONOUNCEMENT : 07.08.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF THE INC OME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)-28, MUMBAI (LD. CIT(A), MUMBAI DATED 13.04.2016 FOR ASS ESSMENT YEAR (AY) 2009-10. THE REVENUE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL: GROUND 1: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO RESTRICT THE DISALLOWANCE OF BOGUS PURCHASES TO RS.31,79,496/-BEING THE ESTIMATED PROF IT OF 11.43% EMBEDDED IN SUCH PURCHASE TRANSACTIONS OF RS.2,78,17,117/ - WIT HOUT APPRECIATING THE FACTS THAT- (I) IN THE ABSENCE OF DELIVERY CHALLANS, LORRY RECE IPTS OTHER CORROBORATIVE EVIDENCES AND THE FAILURE OF THE ASSESSEE TO PRODUC E EITHER THE PARTY FROM WHOM PURCHASES WERE MADE BEFORE THE AO, OR FURNISH ITS LATEST ADDRESS WHERE THE PARTY COULD BE TRACED; IT HAS BEEN CONCLU SIVELY ESTABLISHED IN THE ASSESSMENT ORDER THAT THE SAID PURCHASES ARE BOGUS. ITA NO.4552/M/2016 HITESH H. SHAH 2 (II) IN AKIN CIRCUMSTANCES, THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS LA MEDICA, AS REPORTED IN 250 ITR 575, HAS HELD THAT SUCH BOGUS PURCHASES ARE TO BE DISALLOWED IN THEIR ENTIRELY. (III) IF THE PURCHASES ARE UNAMBIGUOUSLY HELD TO BE BOGUS, THE QUANTITATIVE TALLY AS REGARDS THE SALES AND CLOSING STOCK AND MA INTENANCE OF STOCK REGISTER, AS CLAIMED BY THE ASSESSEE IN SUPPORT HIS CLAIM CANNOT LEAD TO CONCLUSIONS OTHERWISE, AS ACCOUNTANCY IS ESSENTIALL Y AN ART AND NOT A SCIENCE; AS HELD BY THE HON'BLE JAIPUR IT AT IN THE CASE OF KHANDELWAL TRADING CO., AS REPORTED IN 55 TTJ 261.' GROUND 2: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.2,78,171/- ON ACCOUNT OF BROKERAGE DEBITED TO THE P&L A/C. IN RESPECT OF BOG US PURCHASE BILLS OBTAINED WITHOUT APPRECIATING THE FACT THAT, IT IS AN ACCEPT ED FACT THAT THE BOGUS BILLS ARE NOT OBTAINED WITHOUT ANY RECOMPENSE. A QUID PRO QUO IN THE FORM OF BROKERAGE IS THE SINE QUA NON FOR OBTAINING THE BOGUS BILLS. HENCE, THE DISALLOWANCE OF BROKERAGE @ 1 % OF THE BOGUS PURCHASES WAS ON A VER Y CONSERVATIVE BASIS AND SHOULD HAVE BEEN UPHELD BY THE LD.CIT(A).' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE AO SH OULD BE RESTORED AND ORDER OF THE CIT(A) SHOULD BE SET ASIDE.' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PROPRIETOR OF M/S HITESH ENTERPRISES, ENGAGED IN TRADING OF IRON AND STEEL, FILED HIS RETURN OF INCOME FOR RELEVANT AY ON 29.09.2009 DECLARING TOTAL INCOME OF RS. 6,32,980/-. THE RETURN WAS PROCESSED/ACCEPTED U/S 143(1) OF THE ACT. SUBSE QUENTLY, THE ASSESSMENT WAS RE-OPENED U/S 147. THE NOTICE U/S 148 DATED 28.03.2 013 ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSMENT WAS RE-OPENED ON THE BASIS OF INFORMATION RECEIVED FROM SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, TH AT ASSESSEE HAS PURCHASED MATERIAL FROM HAWALA DEALERS, WHO WERE IDENTIFIED B Y SALE TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. THE ASSESSEE CONTESTED T HE RE-ASSESSMENT PROCEEDING AND PROVIDED THE NECESSARY INFORMATION TO THE ASSES SING OFFICER (AO). THE AO NOTICED THAT THE ASSESSEE PURCHASED THE MATERIAL FR OM THE FOLLOWING PARTIES, WHOSE NAME WERE LISTED IN THE LIST OF HAWALA DEALERS: NAME OF PARTIES AMOUNT REKHA TRADING CO. 330990 ITA NO.4552/M/2016 HITESH H. SHAH 3 M R, CORPORATION 3664283 SUN ENTERPRISES 3132274 RENUKA SALES 1778091 DEEPALI ENTERPRISES 6916673 S S ENTERPRISES 371529 SIDDHIVINAYAK TRADING CO. 3597204 BALAJI TRADING CO. 2231350 SAMARTHA TRADING CO. 1623145 R J CROPORATION 2519491 TO TAL 2,78,17,117 3. THE AO ISSUED NOTICE U/S 133(6) TO THE ALL TEN PART IES FOR VERIFICATION. THE NOTICES SENT THROUGH POSTAL AUTHORITIES WERE RETURNED BACK. THE ASSESSEE WAS ASKED TO PROVE THE GENUINITY OF THE PURCHASES SHOWN AGAINST ALL THESE 10 PARTIES. THE ASSESSEE FILED ITS REPLY AND CONTENDED THAT THE ASS ESSEE MADE THE PURCHASES THROUGH BROKERS AND NOT DIRECTLY FROM THESE PARTIES . THE ASSESSEE FURNISHED THE SALES AND CORRESPONDING PURCHASES. THE CONTENTION O F THE ASSESSEE WAS NOT ACCEPTED BY THE AO. THE AO DISALLOWED 25% OF THE AL LEGED BOGUS PURCHASES HOLDING THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FOR EXAMINATION NOR PROVIDED THE LATEST ADDRESS. THE AO FURTHER HELD THAT ASSESS EE ADMITTED IN HIS STATEMENT RECORDED ON 14.03.2014 THAT THE BROKER AND PARTIES ARE NOT TRACEABLE AND CANNOT BE PRODUCED FOR VERIFICATION. ON THE BASIS OF STATEMEN T OF ASSESSEE, THE AO REJECTED THE BOOKS OF ACCOUNT AND DISALLOWED 25% OF THE IMPU GNED PURCHASES FROM TEN PARTIES. THE AO WORKED OUT THE ADDITION OF RS. 69,5 4,279/-. THE AO FURTHER HELD THAT THE ASSESSEE MADE THE PURCHASES MOSTLY THROUGH BROKERS AND THE ASSESSEE HAS DEBITED THE COMMISSION PAYMENT OF RS. 3,89,586/- AN D ACCORDINGLY 1% OF THE GROSS PURCHASES FROM TEN PARTIES ON ACCOUNT OF BROK ERAGE WAS ALSO DISALLOWED. IN THE ORDER PASSED U/S 143(3) R.W.S. 147 OF THE ACT D ATED 15.03.2014. AGGRIEVED BY ITA NO.4552/M/2016 HITESH H. SHAH 4 THE ORDER OF ASSESSMENT, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHEREIN THE DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES WAS RESTRICTED TO 11.43% AND DISALLOWANCE OF BROKERAGE CHARGES WAS DELETED. HENC E, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT APPEA L BEFORE US. 4. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF ASSESSEE AND PERU SED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR FOR THE REVENUE SUPPORTED THE OR DER OF THE A.O. THE LD. DR FURTHER ARGUED THAT THE ENQUIRIES CONDUCTED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT REVEALS THAT THE NAME OF THE PARTIES FROM WHOM THE ASSESSEE HAS MADE PURCHASES WAS INVOLVED IN PROVIDI NG THE ACCOMMODATION BILLS ONLY. NO MATERIAL WAS SOLD BY THOSE HAWALA DEALERS. THE ASSESSEE PURCHASED THE MATERIAL BY SHOWING THE EXPENDITURE FROM TEN OF SUC H PARTIES AS RECORDED BY AO, WHOSE NAME APPEARED IN THE LIST OF HAWALA DEALERS. THE SALES TAX DEPARTMENT OF MAHARASHTRA GOVERNMENT HAS CONDUCTED INDEPENDENT EN QUIRIES WHICH HAVE CONCLUSIVELY PROVED THAT THESE PARTIES WERE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES. THE A.O. MADE ADDITION ON THE BASIS OF FUL L PROOF AND EVIDENCE AGAINST THE ASSESSEE, AS NO DETAILS OF TRANSPORTATION OF GOODS AND THE MEANS OF TRANSPORTATION WAS PROVIDED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS THE A.O. SEND THE NOTICES TO THE PARTIES U/S. 133(6), HOWEVER, NO NOTICE COULD BE SERVED ON THOSE PARTIES. THE PARTIES WERE NOT AVAILABLE AT THEIR GI VEN ADDRESSES. THE ONUS WAS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHA SES. THE ASSESSEE FAILED TO PROVE THE GENUINENESS, THUS, THE A.O. WAS JUSTIFIED IN MAKING 100% DISALLOWANCE OF UNEXPLAINED EXPENDITURE . ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE ARGU ED ITA NO.4552/M/2016 HITESH H. SHAH 5 THAT ASSESSEE IS DOING THE BUSINESS OF TRADING IN I RON AND STEEL FROM LAST 25 YEARS. THE ASSESSEE PURCHASES THE MATERIAL FROM GENUINE PA RTIES. THE COMPLIANCE OF THE VARIOUS, NOTICES OF THE AO WERE MADE. THE ASSESSEE SUBMITTED/FILED LEDGER ACCOUNT WITH TAX INVOICES, PURCHASE, STATEMENT OF CORRESPON DING SALES AGAINST THE PURCHASES, BANK STATEMENT HIGHLIGHTING THE PROOF OF PAYMENT THROUGH BANKING CHANNEL ALONG WITH THE DETAILS OF VENDORS. THE ASSE SSEE FURNISHED ALL THE DETAILS AND EVIDENCE REQUIRED IN THE COURSE OF ASSESSMENT P ROCEEDING. THE AO REJECTED THE BOOKS OF ACCOUNT WITHOUT APPRECIATING THE MATER IAL FACT. THE AO FAILED TO APPRECIATE THAT THERE WAS NO CASH PURCHASES. THERE WERE MERE ALLEGATION OF 3 RD PARTIES REGARDING THE ALLEGED BOGUS PURCHASE. NOTHI NG INCRIMINATING MATERIAL WAS BROUGHT BY THE AO TO SUBSTANTIATE THE DISALLOWANCE. THE ASSESSEE HAS NO CONTROL OVER THOSE PARTIES OR ANY AUTHORITY TO DIRECT THEM TO MAKE THE NECESSARY COMPLIANCE TO THE NOTICES OF INCOME-TAX AUTHORITIES . AT THE BEST, THE ASSESSEE COULD FILED THE EVIDENCES AVAILABLE WITH HIM, WHICH WAS FILED BEFORE THE AO AS WELL AS BEFORE THE LD. CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. GROUND NO.1 RELATES TO RESTRICTING THE DISALLOWANCE OF BOGUS PURCHASES TO ESTIMATE THE PROFIT @ 11.43% ON ACCOUNT OF IMPUGNED/BOGUS TRANSACTION. THE AO DISALLOWED 25% OF THE ALLEGED B OGUS PURCHASES HOLDING THAT ASSESSEE COULD NOT PRODUCE THE PARTIES FOR EXAMINAT ION NOR PROVIDED THE LATEST ADDRESS. THE AO FURTHER HELD THAT ASSESSEE ADMITTED IN HIS STATEMENT RECORDED ON 14.03.2014 THAT THE BROKER AND PARTIES ARE NOT TRAC EABLE AND CANNOT BE PRODUCED FOR VERIFICATION. ON THE BASIS OF STATEMENT OF ASSESSEE , THE AO REJECTED THE BOOKS OF ITA NO.4552/M/2016 HITESH H. SHAH 6 ACCOUNT AND DISALLOWED 25% OF THE IMPUGNED PURCHASE S FROM TEN PARTIES. THE AO WORKED OUT THE ADDITION OF RS. 69,54,279/-. THE ASS ESSEE MADE THE SIMILAR CONTENTION BEFORE THE LD. CIT(A), THE LD. CIT(A) OB SERVED THAT THE AO HAVE NOT DOUBTED THE SALE OF THE ASSESSEE. THE SALE CANNOT B E MADE WITHOUT PURCHASE OF GOODS. THUS, THE PURCHASE CANNOT BE DOUBTED EVEN TH OUGH THEY ARE NOT MADE FROM SAME PARTIES THOSE DEBITED IN BOOKS OF ACCOUNT. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE ADMITTED THAT TRANSACTION HAVE BE EN ROUTED THROUGH BROKER AND THE BROKER IS NOT TRACEABLE IS ENOUGH SUBSTANTIAL EVIDE NCE CASTING DOUBT ON THE NATURE OF TRANSACTION. THE LD. CIT(A) FURTHER OBSERVED THA T HE IS OF THE FORM BELIEF THAT ASSESSEE HAD MADE CASH PURCHASES FROM OTHER PARTIES WHICH WERE NOT RECORDED IN THE BOOKS AND THE ASSESSEE TOOK ONLY BILLS AS ACCOM MODATION TO EXPLAIN THE PURCHASES. THE DISALLOWANCE @ 25% OF THE BOGUS PURC HASES WAS CONSIDERED ON THE HIGHER SIDE AND CONSIDERING THE REASONABILITY RESTR ICTED THE SAME TO 12.5% OF THE BOGUS PURCHASES. SINCE THE ASSESSEE HAS ALREADY REC ORDED GROSS PROFIT OF 1.07% ON THESE TRANSACTION. THUS, THE ASSESSEE WAS FURTHER G IVEN CREDIT OF 1.07%. THUS, FINALLY THE DISALLOWANCE WAS RESTRICTED @ 11.43% OF IMPUGNED PURCHASES OF (RS. 2,78,17,117/-). 6. WE ARE OF THE CONSIDERED VIEW THAT UNDER INCOME-TAX ACT, THE ONLY REAL INCOME CAN BE TAXED BY THE REVENUE, EVEN IF THE TRANSACTIO N IS NOT VERIFIABLE DUE TO ANY REASON, THE ONLY TAXABLE IS THE TAXABLE INCOME COMP ONENT AND NOT AGGREGATE OF THE TRANSACTION. AFTER CONSIDERING THE FACT AND NATURE OF BUSINESS OF ASSESSEE, WE ARE OF THE OPINION THAT IN ORDER TO FULFILL THE GAP OF REV ENUE LEAKAGE, THE DISALLOWANCE OF REASONABLE PERCENTAGE OF IMPUGNED PURCHASES WOULD M EET THE END OF JUSTICE. THE ITA NO.4552/M/2016 HITESH H. SHAH 7 HONBLE BOMBAY HIGH COURT IN CIT VS HARIRAM BHAMBHA NI IN ITA NO. 313 OF 2013 DECIDED ON 04.2.2015 HELD THAT REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTA BLE ON THE TOTAL UNRECORDED SALES CONSIDERATION ALONE CAN BE SUBJECT TO INCOME TAX. THUS, CONSIDERING THE ABOVE LEGAL AND FACTUAL POSITION, WE DO NOT FIND ANY MERI T IN THE GROUNDS OF APPEAL RAISED BY REVENUE. 7. GROUND NO.2 RELATES TO DELETING THE ADDITION OF RS. 27,812/- ON ACCOUNT OF BROKERAGE. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AO AND WOULD ARGUE THAT SINCE THE ASSESSEE HAS SHOWN THE BOGUS P URCHASES AND DEBITED THE BROKERAGE CHARGES IN THE PROFIT & LOSS A/C. AS THE AO DISALLOWED THE 25% OF BOGUS PURCHASES, THE AO HAS RIGHTLY DISALLOWED THE BROKERAGE CHARGES AS NO SUCH BROKERAGE WAS PAID BY THE ASSESSEE. THE LD. AR OF T HE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A) AND WOULD ARGUE THAT THE AO HAS NOT B ROUGHT ANYTHING ON RECORD TO PROVE THAT PURCHASE OF ASSESSEE WAS BOGUS OR THAT N O COMMISSION PAYMENT WAS MADE BY ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO DIS ALLOWED THE BROKERAGE CHARGES HOLDING THAT THE PURCHASES ARE BOGUS AND THUS DISAL LOWED THE BROKERAGE CHARGES. THE LD. CIT(A) WHILE CONSIDERING THE GROUND HOLD TH AT SUCH ADDITION CANNOT BE SUSTAINED AS THE AO HAS NOT EXAMINED AS TO WHICH TR ANSACTION OF BROKERAGE PERTAINS TO. THE AO MERELY MAKE AN INFERENCE THAT B ROKERAGE PERTAINS TO THE PURCHASE TRANSACTION ONLY. WE HAVE NOTED THAT THE A SSESSEE HAS CLAIMED THE BROKERAGE AND COMMISSION PAYMENT OF RS. 3,89,586/- WHICH WERE DEBITED TO PROFIT ITA NO.4552/M/2016 HITESH H. SHAH 8 & LOSS A/C. THE AO WITHOUT EXAMINING THE DETAILS OF COMMISSION DISALLOWED THE BROKERAGE @ 1% OF THE ALLEGED BOGUS PURCHASES. THE AO NEITHER SEEK ANY CLARIFICATION OR EXPLANATION FROM THE ASSESSEE BEFO RE MAKING DISALLOWANCE. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD BEFORE MA KING THE DISALLOWANCE. THE LD. CIT(A) RIGHTLY APPRECIATED THE FACT THAT THE CO NCLUSION OF DISALLOWANCE OF COMMISSION PAYMENT MADE BY THE AO WITHOUT ANY DISCU SSION IN THE ASSESSMENT ORDER AND DELETED THE DISALLOWANCE. CONSIDERING THE FACT THAT THE DISALLOWANCE WAS MADE BY AO WITHOUT CONSIDERATION OF PROPER FACT WHI CH WAS RIGHTLY DELETED BY LD. CIT(A). THUS, WE DO NOT FIND ANY REASON TO INTERFER E IN THE ORDER OF LD. CIT(A). HENCE, GROUND NO.2 RAISED BY REVENUE IS ALSO DISMIS SED. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DAY OF AUGUST 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) (VICE-PRESIDENT) JUDICIAL MEMBER MUMBAI; DATED 07/08/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/