ADDLCIT RG 1, MUMBAI V. JAGANNATH HARINARAIN, MUMBAI

ITA 4606/MUM/2010

• Counselvise Citation: 460619914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 20-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: A H DALAL
• Keywords: Bogus purchase; Gross profit estimation; Rejection of books of accounts; Onus to prove
• Section: 143(3); 131; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND B.RAMAKOTAIAH (A .M ) ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) DEPUTY COMMISSIONER OF INCOME TAX 16(3) ROOM NO.206, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400007 M/S JAGANNATH HARINARAIN, 238, PANCHRATNA, OPERA HOUSE, MUMBAI-400004 PAN:AACFJ2352C APPELLANT V/S RESPONDENT DATE OF HEARING : 27.9.2011 DATE OF PRONOUNCEMENT : 12.10.2011 APPELLANT BY : SHRI S.K.S INGH RESPONDENT BY : SHRI A.H.DAL AL O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.3.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2007-08 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FIRM WAS ENGAGED IN THE BUSINESS OF BUYING AND EXPO RT OF CUT AND POLISHED DIAMONDS DURING THE YEAR. NO MANUFACTU RING ACTIVITY WAS CARRIED OUT DURING THE YEAR UNDER CON SIDERATION. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.34,40,915/-. DURING THE COURSE OF ASSESSMENT ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 2 PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS SH OWN PURCHASES OF RS.7,80,35,031/-. TO ENQUIRE ABOUT T HE GENUINENESS OF PURCHASES SHOWN FROM CERTAIN PARTIE S BASED IN MUMBAI COMMISSION WAS ISSUED U/S 131 (1)(D) TO THE DDIT (INT.) MUMBAI. IN THE INQUIRY REPORT IT WAS R EPORTED THAT THE PARTIES NAMELY I) JHALAK EXPORTS; II) MANOJ DIA MONDS; III) OSTWAL DIAMONDS(P) LTD. AND IV) ASHOK GEMS W ERE NOT FOUND AT THE GIVEN ADDRESSES. NO PHYSICAL ACTIVITY OF ANY BUSINESS WAS DONE FROM THOSE PREMISES. IN CASE OF JHALAK EXPORTS SUMMONS WERE SERVED BY THE INSPECTOR ON ONE OF THE EMPLOYEES FOUND IN NEIGHBOURING SHOP. IN CASE OF MANOJ DIAMONDS, SUMMONS COULD NOT BE SERVED AND IT WAS FOUND THAT THE SHOP WAS LOCKED SINCE LONG. SUBSEQUENTLY, ONE AR ATTENDED ON BEHALF OF THESE TWO CONCERNS BUT NO BOO KS OF ACCOUNTS WERE PRODUCED. BOTH THE CONCERNS WERE TH EREFORE HELD AS NON GENUINE. IN ANOTHER CONCERN NAMELY OST WAL DIAMONDS PVT.LTD, THE PLACE WAS FOUND TO BE A RESID ENTIAL PREMISES WITH NO BUSINESS ACTIVITY. SUMMONS WAS RE CEIVED BUT THE REPLY WAS RECEIVED SHOWING THE ADDRESS AS S AME TO THE ADDRESS OF M/S SS DIAMONDS & ADITI GEMS. NO BOOKS WERE PRODUCED. THE CONCERN WAS ALSO HELD AS NON GEN UINE. IN ANOTHER CONCERN NAMELY ASHOK GEMS, THE PREMISES WAS FOUND LOCKED. SUMMONS COULD NOT BE SERVED AND, THE REFORE, THE CONCERN WAS HELD AS NON GENUINE. ACCORDINGLY A SHOW ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 3 CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ASKING AS TO WHY PURCHASES FROM I) JHALAK EXPORTS, RS.1,06,14,778/- ; II) MANOJ DIAMONDS, RS.2,38,88,814/-; III) OSTWAL DIAMONDS ( P) LTD., RS.69,23,579/- AND IV) ASHOK GEMS, RS.53,88,014/- AGGREGATING TO RS.4,68,15,185/- MAY NOT BE CONSIDE RED AS UNVERIFIABLE. THE AO AFTER CONSIDERING THE ASSESSE ES REPLY APPEARING AT PAGES 4 TO 7 OF THE ASSESSMENT ORDER HELD THAT THE PURCHASES AMOUNTING TO RS.4,68,15,185/- FROM TH E ABOVE MENTIONED FOUR PARTIES REMAINED UNVERIFIABLE. THE A O FURTHER OBSERVED THAT THE DECLARED GP RATE OF 8.47% IS LO WER THAN 10.69% OF THE IMMEDIATELY PRECEDING YEAR AND 8.91% OF THE YEAR BEFORE. IT WAS EXPLAINED THAT THE ASSESSEE W AS CARRYING OLD INVENTORY COSTING RS.96.78 LACS WHICH WAS OF INFERIOR QUALITY AND WAS SOLD IN THE LOCAL MARKET A T LOSS OF RS.3.20 LACS. HOWEVER, NO DOCUMENTARY EVIDENCE WAS FILED. THE AO AFTER RELYING ON THE VARIOUS CASE LAWS INCLU DING DECISIONS IN THE CASE OF (I) M/S SANJAY OIL CAKE IN DUSTRIES V/S CIT 10 DTR (GUJ) 153 AND (II) M/S VIJAY PROTEI NS LTD. V/S ACIT 58 ITD 428, ITAT, AHD. C BENCH, REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE INCOME TAX ACT, 196 1 (IN SHORT THE ACT) AND MADE ADDITION OF RS.1,17,03,796/- B EING 25% OF UNVERIFIABLE PURCHASES OF RS.4,68,15,185/- AND ACCORDINGLY COMPLETED THE ASSESSMENT AT AN INCOME OF ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 4 RS.1,51,44,710/- VIDE ORDER DATED 16.12.2009 PASSED UNDER SECTION 143(3) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE RE JECTION OF BOOKS OF ACCOUNT U/S 145 (3), DISTINGUISHED THE DECISIONS IN THE CASE OF M/S SANJAY OIL CAKE INDUSTRIES (SUPR A) AND M/S VIJAY PROTEINS LTD (SUPRA) AND AFTER CONSIDERIN G THE PAST HISTORY OF THE CASE AND THE REASONS GIVEN FOR FALL IN GP RATE DIRECTED THE AO TO APPLY GP RATE OF 9.21% ON THE D ECLARED SALES OF RS.896.90 LAKHS AS THE WEIGHTAGE AVERAGE GP RATE OF THREE YEARS COMES TO 9.21 % AND HENCE HE PARTLY ALLOWED THE APPEAL. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING SOL E EFFECTIVE GROUND OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO APPLY GP RATE OF 9.21% ON THE DECLARED SALES INSTEAD OF UPHOLDIN G ADDITION OF 25% OF BOGUS PURCHASES MADE BY THE AO BASED ON THE DECISION OF THE HONBLE ITAT AHMEDABA D C BENCH IN THE CASE OF M/S VIJAY PROTEINS LTD. V /S ACIT (58 ITD 428) EVEN THOUGH THE LD. CIT(A) DID NO T DISPUTE THE OBSERVATIONS MADE BY THE AO THAT THE PURCHASES WERE UNVERIFIABLE. 5. AT THE TIME OF HEARING, THE LD. DR WHILE RELYING ON THE ORDER OF THE AO FURTHER SUBMITS THAT THE LD. CIT( A) HAS ERRED IN DIRECTING THE AO TO APPLY GP RATE OF 9.21% ON THE DECLARED SALES INSTEAD OF UPHOLDING ADDITION OF 25 % OF ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 5 BOGUS PURCHASES MADE BY THE AO BASED ON THE DECISIO N OF THE HONBLE ITAT AHMEDABAD C BENCH IN THE CASE O F M/S VIJAY PROTEINS LTD. V/S ACIT (58 ITD 428). HE , THEREFORE, SUBMITS THAT THE ADDITION MADE BY THE AO BE RESTOR ED. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LD. CIT (A), AT THE OUTSET, SUBMITS THAT IT IS NOT THE CASE OF THE BOGU S PURCHASES BUT IT IS THE CASE OF UNVERIFIABLE PURCHASE. THE L EARNED COUNSEL FOR THE ASSESSEE WHILE REFERRING TO THE RE PLY OF THE PARTIES ALONG WITH THE EVIDENCE APPEARING AT PAGES 55 TO 101 OF THE ASSESSEES PAPER BOOK SUBMITS THAT THE ASSES SEE HAS DISCHARGED HIS BURDEN TO PROVE THE GENUINENESS OF THE PURCHASES MADE BY HIM. HE FURTHER SUBMITS THAT DUE TO LACK OF OPPORTUNITY THE ASSESSEE COULD NOT PRODUCE THE ABOVE PARTIES BUT HAS FILED THEIR CONFIRMATIONS AND SUPPO RTING EVIDENCE TO SHOW THAT THE PURCHASES MADE BY THE ASS ESSEE FROM THE SAID PARTIES ARE GENUINE. HE, FURTHER SU BMITS THAT THE DECISIONS RELIED ON BY THE AO ARE DISTINGUISH ABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. H E, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) IN DIRECTING THE AO TO APPLY GP RATE AT THE RATE OF 9 .21% ON THE DECLARED SALES BE UPHELD. ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 6 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE AO HAS NOT TREATED THE PURCHASES OF RS.4,68,15,185/- AS BOGUS PURCHASES AS HE HAS MA DE NO ADDITION AS SUCH OF THE SAID PURCHASES. IN FACT, TH E AO TREATED THE SAID PURCHASES OF RS.4,68,15,185/- AS UNVERIFIABLE. WE FURTHER FIND THAT THE AO FURTHER NOTED THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN LOW GP AS COMPARED TO EARLIER YEARS. CONSIDERING THIS FACT, THE AO REJECTED THE BOOKS OF ACCOUNTS UNDER THE PROVISI ONS OF SECTION 145(3) OF THE ACT AND MADE ADDITION OF RS.1,17,03,796/- BEING 25% OF UNVERIFIABLE PURCHASE OF RS.4,68,15,185/-. WE FURTHER FIND THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ABOVE THREE PARTIES, FR OM WHOM THE ASSESSEE HAS MADE PURCHASES, HAVE FILED THEIR R EPLY ALONG WITH FOLLOWING DOCUMENTARY EVIDENCE:- I) COPY OF THE LEDGER ACCOUNT OF THE ASSESSEE IN THEIR BOOKS; II) COPY OF SALES REGISTER; III) COPY OF PURCHASE REGISTER; IV) COPY OF BANK STATEMENT; V) COPY OF SALES INVOICES; VI) COPY OF STOCK-REGISTER AND ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 7 VII) COPY OF ACKNOWLEDGEMENT OF RETURN FILED WE FURTHER FIND THAT IN THE CASE OF ASHOK GEMS, TH E SAID PARTY HAS FILED THE COPY OF ASSESSEES ACCOUNT IN T HEIR BOOKS, ACKNOWLEDGEMENT OF INCOME TAX RETURN, BANK ACCOUNT AND SALE INVOICE. BESIDE THIS, IT WAS ALSO STATED BY THE ASSESSEE THAT IN THE ASSESSMENT YEAR 2006-07 SIMILAR INQUIRI ES WERE CONDUCTED FROM THE SAID PARTY I.E ASHOK GEMS AND NO ADDITION WAS MADE IN THAT YEAR. IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECORD BY THE REVENUE AGAINST THE ABOVE DOCUMENTARY EVIDENCE FILED WE ARE OF THE VIEW THAT THE ASSESSEE HAS DISCHARGED HIS INITIAL ONUS TO PRO VE THE GENUINENESS OF PURCHASES AND THE REVENUE HAS FAILED TO CONTROVERT THE SAME. 8. IN THE CASE OF M/S VIJAY PROTEINS LTD. (SUPRA) I T HAS BEEN OBSERVED AND HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES OF OIL CAKES SAID TO H AVE BEEN MADE FROM 33 PARTIES WHICH HAD BEEN HELD TO BE BOG US PARTIES BY THE DEPARTMENTAL AUTHORITIES. IT HAS B EEN FURTHER OBSERVED THAT IT WAS INCUMBENT ON THE ASSESSEE TO PROVE THAT THE SUPPLIERS WERE GENUINE SUPPLIERS OF OIL CA KES AND THEY REALLY SUPPLIED THE SAID OIL CAKES TO THE A SSESSEE AND THE ASSESSEE REALLY MADE PAYMENTS BY CHEQUES TO TH ESE VERY PARTIES AND NONE ELSE. SUCH A BURDEN HAD TO B E ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 8 DISCHARGED BY THE ASSESSEE WITH VERY STRONG AND CL INCHING EVIDENCE IN VIEW OF A BLATANT DENIAL BY THESE SOME PARTIES TO AN INVESTIGATION BY THE AO. NO SERIOUS EFFORTS WERE MADE BY THE ASSESSEE TO DISCHARGE SUCH BURDEN OF PROVING TH E GENUINENESS OF THE TRANSACTIONS WITH THESE PARTIES. THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 145(2) OF THE ACT. IT WAS FU RTHER HELD THAT THE CIT(A) AFTER TAKING INTO CONSIDERATION TH E ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, GRANTED RE LIEF AND RESTRICTED THE ADDITION TO RS.30 LAKHS AS AGAINST T HE ADDITION OF RS.40,54,707/- MADE BY THE AO IN RESPECT OF LO W YIELD OF OIL FROM RAPESEED FROM WGS AND OIL CAKES INTRODUCED FROM UNDISCLOSED INCOME AND HENCE THE OR DER OF THE LD. CIT(A) WAS CONFIRMED. 9. IN M/S SANJAY OIL CAKE INDUSTRIES V/S CIT (2009) 316 ITR 274 (GUJ), IT HAS BEEN HELD (HEAD NOTE, PAGE 27 5): HELD THAT THE FINDING OF THE ASSESSING OFFICER H AD BEEN ACCEPTED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL THAT THE APPARENT SELLERS WHO HAD ISSUED S ALE BILLS WERE NOT TRACEABLE. THE GOODS WERE RECEIVED F ROM THE PARTIES OTHER THAN THE PERSONS WHO HAD ISSUED B ILLS FOR SUCH GOODS. THOUGH THE PURCHASES WERE SHOWN TO HAVE BEEN MADE BY MAKING PAYMENT THEREFORE BY ACCOUNT PAYEE CHEQUES, AND THE CHEQUES HAD BEEN DEPOSITED IN BANK ACCOUNTS OSTENSIBLY IN THE NAME O F THE APPARENT SELLERS, THEREAFTER THE ENTIRE AMOUNTS HAD BEEN WITHDRAWN BY BEARER CHEQUES AND THERE WAS NO TRACE OR IDENTITY OF THE PERSON WITHDRAWING THE AMOUNT FROM THE BANK ACCOUNTS. BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAD COME TO THE CONCLUSION THAT IN SUC H ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 9 CIRCUMSTANCES, THE LIKELIHOOD OF THE PURCHASE PRICE BEING INFLATED COULD NOT BE RULED OUT AND THERE WAS NO MA TERIAL TO DISLODGE SUCH FINDING. THE ASSESSEE HAD, BY EVID ENCE AVAILABLE ON RECORD, MADE IT POSSIBLE FOR THE RECIP IENTS NOT BEING TRACEABLE FOR THE PURPOSE OF INQUIRY AS T O WHETHER THE PAYMENTS MADE BY THE ASSESSEE HAD BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS. HENCE, T HE ESTIMATE MADE BY THE APPELLATE AUTHORITIES DID NOT WARRANT INTERFERENCE. 10. WHEREAS IN THE CASE BEFORE US, THE ASSESSEE HAS FILED AFORESAID DOCUMENTARY EVIDENCE, IN SUPPORT OF GE NUINENESS OF THE PURCHASES. IT IS NOT THE CASE OF THE REVENU E THAT THERE IS ANY DENIAL BY THE PARTIES FROM WHOM THE AS SESSEE HAS MADE PURCHASES OR THE CONFIRMATIONS AND OTHER E VIDENCE FILED BY THE SAID PARTIES ARE FOUND TO BE BOGUS OR NON GENUINE OR NO SUCH GOODS WAS SUPPLIED TO THE ASSESS EE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSE E HAS INFLATED THE PURCHASES AND THE CHEQUE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN TAKEN BACK BY THE ASSESSEE IN C ASH. THEREFORE, THE DECISIONS RELIED UPON BY THE REVENUE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HOWEVER, KEEPING IN VIEW THE FINDING RECOR DED BY THE LD. CIT(A), WE ARE OF THE VIEW THAT THE LD. CIT (A) WAS FULLY JUSTIFIED IN UPHOLDING THE APPLICATION OF THE PROVI SIONS OF SECTION 145(3) OF THE ACT. 11. AS REGARDS THE APPLICATION OF GP RATE AT 9.21 %, WE FIND THAT THE LD. CIT(A) AFTER CONSIDERING THE PAS T HISTORY OF ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 10 THE CASE AND THE REASONS GIVEN BY THE ASSESSEE FOR FALL IN GP RATE HAS TAKEN THE WEIGHTAGE AVERAGE OF GP RAT E OF LAST THREE YEARS WHICH HE WORKED OUT AT 9.21% AND APPLI ED THE SAME ON THE DECLARED SALES OF RS.896.90 LAKHS. IN THE ABSENCE OF ANY CONTRARY MATERIALS PLACED ON RECORD BY THE REVENUE AGAINST THE BASIS ADOPTED BY THE LD. CIT(A ), WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN APPLYING THE AVERAGE GP RATE AT 9.21% ON THE DECLARED SALES OF RS.896.90 LAKHS AND ACCORDINGLY THE GROUND TAKEN BY THE REVENUE IS REJECTED. 12. IN THE RESULT, THE REVENUES APPEAL STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCT. , 2011. SD SD (B.RAMAKOTAIAH) (D. K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12 TH OCT., 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.4606/MUM/2010 (ASSESSMENT YEAR:2007-08) 11