AMITY LEATHER INTERNATIONAL, MUMBAI V. ACIT RANGE - 3, THANE

ITA 4692/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8921 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 11-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 4692/MUM/2016 (ASSESSMENT YEAR-2010-11) M/S AMITY LEATHER INTERNATIONAL SAPHALE, 201-E, GURUKRUPA CO-OP HSG, OPP. PLAZA CINEMA, DADAR (W), MUMBAI-400028. PAN: AAEFA7271K VS. ACIT, CIR-PALGHAR. PALGHAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI V. JUSTIN (SR. DR) DATE OF HEARING : 30.10.2017 DATE OF PRONOUNCEMENT : 30.10.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE U/S 253 OF THE INCOME-TAX A CT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-3, THANA D ATED 23.05.2016 FOR ASSESSMENT YEAR (AY) 2010-11. THE ASSESSEE HAS RAIS ED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(APPEALS) OUGHT TO HAVE DELETED THE ENTI RE ADDITION OF ALLEGED BOGUS PURCHASE OF RS. 61,75,442/-. HE ERRED IN CONF IRMING THE DISALLOWANCE OF 25% OF ALLEGED BOGUS PURCHASES OF RS. 61,75,442/ -. 2. THE LD. CIT(APPEALS) OUGHT TO HAVE DELETED THE ENTI RE AD HOC ADDITION OF EXPENSES OF RS. 2,83,560/-. HE ERRED IN GIVING RELI EF OF 50% OF THE ADDITION INSTEAD OF GIVING FULL RELIEF. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF MANUFACTURING OF EXPORT OF LEATHER GOODS, ACCESSORIES, FILED ITA NO. 4692/M/2016- M/S AMITY LEATHER INTERNATIONAL SAPHALE 2 ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ( AY) ON 23.09.2010 DECLARING TOTAL INCOME AT RS. 1,04,99,490/-. THE AS SESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.03.2013. THE ASSESSING O FFICER (AO) WHILE PASSING THE ASSESSMENT ORDER, MADE THE ADDITION OF RS. 61,75,442/- ON ACCOUNT OF BOGUS PURCHASES AND FURTHER DISALLOWED 2 5% OF EXPENSES OF RS. 11,34,246/-. THE DISALLOWANCE OF EXPENSES WERE WORK ED OUT TO RS. 2,83,560/- I.E. 25% OF RS. 11,34,246/-. ON APPEAL B EFORE THE LD. CIT(A), BOTH THE ADDITION/DISALLOWANCE WAS CONFIRMED. FURTH ER, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRE SENT APPEAL BEFORE US. 3. NONE APPEARED ON BEHALF OF ASSESSEE WHEN CASE WAS C ALLED FOR HEARING. AFTER PASSING OVER AND WAITING FOR SUFFICIENT TIME WHEN NONE APPEARED ON BEHALF OF ASSESSEE, WE LEFT NO OPTION EXCEPT TO HEA R THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND TO DECIDE T HE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE NOTICE FOR THE HEARING OF THE APPEAL FOR THIS DATE WAS SENT THROUGH REGISTERED POST ON 12.10 .2017. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE SU PPORTED THE ORDER OF AUTHORITIES BELOW. IT WAS ARGUED THAT INVESTIGATION WING OF THE INCOME-TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA MADE THE FULL -FLEDGED ENQUIRY ABOUT THE HAWALA DEALERS. THE HAWALA DEALERS WERE E NGAGED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT THE DELIVERY OF GOODS . DURING THE RELEVANT PERIOD, THE ASSESSEE HAS MADE PURCHASES FROM TWO PA RTIES. NAME OF BOTH THE PARTIES WERE LISTED IN THE LIST OF HAWALA DEALERS. THE PROPRIETOR OF BOTH THE ITA NO. 4692/M/2016- M/S AMITY LEATHER INTERNATIONAL SAPHALE 3 PARTIES HAVE GIVEN AFFIDAVIT BEFORE THE SALES-TAX D EPARTMENT, GOVERNMENT OF MAHARASHTRA THAT THEY WERE NOT DOING ANY GENUINE BU SINESS ACTIVITY, RATHER WERE ENGAGED IN PROVIDING THE ACCOMMODATION ENTRIES . FOR DISALLOWANCE OF EXPENSES, THE LD. DR FOR THE REVENUE ARGUED THAT TH E ASSESSEE FAILED TO SUBSTANTIATE WITH DOCUMENTARY EVIDENCE TO PROVE THE GENUINITY OF EXPENSES. 4. WE HAVE CONSIDERED THE SUBMISSION OF LD. DR FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST GROUND OF A PPEAL RELATES TO DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. WE HAVE SEEN THAT DURING THE ASSESSMENT PROCEEDING, THE AO NOTICED THAT THE ASSE SSEE HAS SHOWN THE PURCHASES FROM M/S SHAKTI TRADING CO. FOR RS. 53,24 ,327/- AND FROM M/S SAMIR TRADING CO. FOR RS. 8,51,115/-. THE NAMES OF BOTH THE PARTIES WERE LISTED IN THE LIST OF HAWALA TRADERS AS THE INFORMA TION AVAILABLE AT THE WEBSITE OF SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA . THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF THE PURCHASES AND TO PRODUCE THE PARTIES. THE ASSESSEE FILED NO REPLY OR GIVEN ANY RESPONSE T O THE QUERIES RAISED BY AO. THE AO ON THE BASIS OF INFORMATION OF SALES-TAX DEPARTMENT AND THE INFORMATION OF INVESTIGATION WING OF INCOME-TAX DEP ARTMENT DISALLOWED THE AGGREGATE OF PURCHASES FROM BOTH THE PARTIES. ON AP PEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS RESTRICTED TO 25% OF T HE PURCHASES. THE LD. CIT(A) SUSTAINED THE ADDITION @ 25% ON THE BASIS OF DECISION IN (I) SANJAY OIL CAKE INDUSTRIES VS. CIT (2008) 316 ITR 274 (GUJ ) (II) VIJAY PROTEINS LTD. VS ACIT 58 ITD 428 (ABD) (III) M/S NAND KISHOR E MEGHRAJ JEWELLERS, ITA NO. 4692/M/2016- M/S AMITY LEATHER INTERNATIONAL SAPHALE 4 JAIPUR CO. NO. 105/JP/09 ARISING OUT OF ITA NO. 433 /JP/2009 BY ITAT JAIPUR & (IV) M/S. TRIDENT JEWELLERS ITAT JAIPUR IT A NO. 552/JP/2013. 5. WE HAVE SEEN THAT THE AO WHILE PASSING THE ASSESSME NT ORDER RELIED UPON THE THIRD PARTY INFORMATION AND MADE THE ADDITION W ITHOUT BRINGING ANY INCRIMINATING EVIDENCE AGAINST THE ASSESSEE. HOWEVE R, BEFORE THE LD. CIT(A), THE ASSESSEE HAS CONTENDED THAT THERE WERE CORRESPONDING SALE AGAINST THE PURCHASE AND PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUE AND THE DISALLOWANCE OF ENTIRE PURCHASE IS N OT JUSTIFIED. WE HAVE NOTED THAT BEFORE THE LD. CIT(A), THE ASSESSEE FURN ISHED THE DETAILS OF GROSS PROFIT RATIO FOR AY 2009-10, AY 2010-11 & AY 2011-1 2 WHICH ARE SHOWN AT 14.14, 14.24 & 16.72 RESPECTIVELY. WE HAVE CONSI DERED THE MATERIAL AVAILABLE ON RECORD INDEPENDENTLY. WE HAVE NOTED TH AT THE ASSESSEE HAS FURNISHED THE GROSS PROFIT FOR PREVIOUS YEAR, CURRE NT YEAR AND SUBSEQUENT YEAR. THE ASSESSEE HAS SHOWN THE GROSS PROFIT FOR C URRENT YEAR @ 14.24%. THE LD. CIT(A) SUSTAINED THE ADDITION @ 25% OF THE IMPUGNED/BOGUS PURCHASES. THE DISALLOWANCE @ 25% OF THE BOGUS PURC HASES IS ON HIRE SIDE. IN OUR VIEW, UNDER THE INCOME-TAX ACT, THE REVENUE IS NOT ENTITLED TO TAX THE REAL INCOME AND NOT THE ENTIRE TRANSACTION. EVEN OT HERWISE, THE TRANSACTION IS NOT VERIFIABLE BECAUSE OF THE CERTAIN REASONS, THE REVENUE IS ENTITLED TO TAX THE INCOME COMPONENT ONLY. IN ORDER TO FULFILL THE REVENUE LEAKAGE, THE REVENUE AUTHORITY ON THE BASIS OF FACT OF PARTICULA R CASE MAY BROUGHT TO TAX ONLY THE PROFIT ATTRIBUTABLE ON SUCH PURCHASES. WE ARE ALSO OF THE OPINION ITA NO. 4692/M/2016- M/S AMITY LEATHER INTERNATIONAL SAPHALE 5 THAT IN SUCH CASES IN ORDER TO FULFILL THE REVENUE LEAKAGE, THE DISALLOWANCE OF REASONABLE PERCENTAGE OF BOGUS PURCHASES WOULD MEET THE END OF JUSTICE. CONSIDERING THE FACT THAT ASSESSEE HAS DECLARED THE GROSS PROFIT OF 14.24% DURING THE YEAR UNDER CONSIDERATION. WE ARE OF THE VIEW THAT DISALLOWANCE OF 12.5% OF BOGUS PURCHASES OF RS. 61,75,442/- WOULD M EET THE END OF JUSTICE. THUS, THE AO IS DIRECTED ACCORDINGLY. HENCE, GROUND NO.1 THE APPEAL IS PARTLY ALLOWED. 6. GROUND NO.2 RELATES TO ADDITION ON ACCOUNT OF DISAL LOWANCE OF EXPENSES. WE HAVE NOTED THAT THE ASSESSEE HAS CLAIMED EXPENSES C ONSISTING OF: ADVERTISEMENT RS. 38,597 FESTIVAL EXPENSE RS. 21,908 MISC. EXPENSES RS. 2,27,945 OFFICE MAINTENANCE RS. 1,41,200 CONVEYANCE RS. 1,54,165 PRINTING & STATIONERY RS. 1,07,207 TOTAL RS.11,34,246 7. DURING THE ASSESSMENT, THE ASSESSEE WAS ASKED TO EX PLAIN THE NATURE OF EXPENSES. DURING THE ASSESSMENT, THE ASSESSEE EXPLA INED THAT DUE TO PECULIAR NATURE OF EXPENSES, IT IS NOT POSSIBLE FOR ASSESSEE TO OBTAIN BILLS. IN A NUMBER OF CASES, THE PAYMENTS ARE MADE TO VERY SMALL BUSIN ESSMEN WHO ARE UNABLE TO PROVIDE BILL. THE AO MADE THE ADHOC DISALLOWANCE @ 25%. WE HAVE NOTED THAT THE ASSESSEE HAS DECLARED INCOME OF RS. 1,04,99,490/-. THE ASSESSEE CLAIMED EXPENSES CONSISTING OF ADVERTISEME NT, FESTIVAL, MISCELLANEOUS, OFFICE MAINTENANCE, CONVEYANCE, PRIN TING & STATIONERY AND VISITOR EXPENSES. THE AO HAS NOT DISPUTED THE GENUI NENITY OF EXPENSES. ITA NO. 4692/M/2016- M/S AMITY LEATHER INTERNATIONAL SAPHALE 6 THE AO MADE THE DISALLOWANCE ON THE BASIS OF AD HOC ESTIMATION. IN OUR VIEW, ALL THE EXPENSES ARE RELATED TO BUSINESS ACTI VITIES AND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. CO NSIDERING THE NATURE OF BUSINESS OF ASSESSEE, THE DISALLOWANCE MADE BY AO A ND CONFIRMED BY LD. CIT(A) IS DELETED. THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF EXPENSES. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF OCTOBER 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 30/10/2017 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/