ITO 26(2)(5), Mumbai V. SMT. RESHMA J KHAN, Mumbai

ITA 473/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5810 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 31-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MERCHANT
• Keywords: Bogus purchase; Accommodation entries; Set aside
• Section: 40A(3); 133(6); 143(1); 44AB; 147; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH M UMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.473/MUM/2019 ( ASSESSMENT YEAR: 2011-12 ) ITO-26(2)(5) ROOM NO.506, 5 TH FLOOR C-11, BKC BANDRA (E) MUMBAI-400 051 VS. SMT. RESHMA J KHAN A/9, SHARIF MARKET, LAXMI NARAYAN MANDIR ROAD, SAKINAKA ANDHERI(E) MUMBAI-400 072 PAN/GIR NO. BQOPK6495C ( APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI ASHISH KUMAR, DR ASSESSEE BY SHRI M.S.MERCHANT, AR DATE OF HEARING 27 / 01/2020 DATE OF PRONOUNCEME NT 10 / 0 2 /20 20 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)38, MUMBAI, DATED 14/08/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO 10% OF THE TOTAL AMOUNT OF BOGUS PURCHASE TRANSACTION INSTEAD OF 12. 5% OF THE TOTAL AMOUNT OF BOGUS PURCHASE MADE BY THE AO. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE ADDITI ON WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM DIT(INV,) AND SA LES TAX DEPARTMENT, MAHARASHTRA WITH REGARD NO BOGUS PURCHASE MADE BY T HE ASSESSEE FROM DEALERS WITHOUT SUPPLY OF ACTUAL GOODS.'' ITA NO.473/MUM/2019 RESHMA J KHAN 2 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE HAW ALA OPERATORS HAVE ADMITTED ON OATH BEFORE THE SALES TAX AUTHORITIES T HAT THEY HAVE NOR. SOLD ANY MATERIAL TO ANYBODY. 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE ASSESS EE COULD NOT PROVE THE GENUINENESS AND CREDIT WORTHINESS OF THE PURCHASE T RANSACTIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS.' 5. 'THE LD. CIT(A) FAILED TO UPHOLD THE DECISION O F HONBLE APEX COURT IN THE CASE OF N K PROTEINS LTD. VS. DCIT IN SLP (CIVI L) NO.769/2017 DATED 16.01.2017 WHERE 100% OF ADDITION WAS CONFIRMED BY THE APEX COURT.' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE ARID IN LAW, THE LD. CITA) ERRED IN NOT APPRECIATING THE FACT THAT APPLI CABILITY OF PROVISIONS OF SECTION 40A(3) ATTRACTS 100% BOGUS PURCHASES TO BE HELD AS PROFIT.' 7. 'THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED.' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING S HEET METAL FABRICATION IN THE NAME AND STYLE OF M/S STEEL LINE INDIA, FILED HIS RETURN OF INCOME FOR AY 2011-12 ON 29/09/2011, DECL ARING TOTAL INCOME OF RS. 6,44,360/- AND SAID RETURN WAS PROCES SED U/S 143(1) OF THE I.T.ACT, 1961. THE CASE HAS BEEN SUBSEQUENT LY REOPENED U/S 147 OF THE ACT, ON THE BASIS OF INFORMATION RECEIVE D FROM DGIT, INVESTIGATION, MUMBAI, AS PER WHICH, SALES TAX AUTH ORITIES OF GOVERNMENT OF MAHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WHO HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI AND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE OF THE BENEFICIARY, WHO HAD TAKEN A CCOMMODATION BILLS OF BOGUS PURCHASES FROM VARIOUS PARTIES AS LI STED BY THE AO IN PARA 5 OF HIS ASSESSMENT ORDER AMOUNTING TO RS. 1, 90,44,057/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT H AS BEEN COMPLETED U/S. 143(3).R.W.S. 147 OF THE I.T.ACT, 19 61 ON 31/10/2016 AND DETERMINED TOTAL INCOME OF RS. 30,24,870/-, AFT ER MAKING ITA NO.473/MUM/2019 RESHMA J KHAN 3 ADDITION TOWARDS 12.50% PROFIT ON ALLEGED BOGUS PUR CHASE FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 23,80,507/- . 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS FILED ELABORATE WRITTEN SUBMISSIONS, ON THE ISSUE, WHICH HAS BEEN REPRODUCED AT PARA 6.1 ON PAGES 5 TO 6 OF LD.CIT(A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE T HE LD.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHICH IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADD ITIONS COULD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIR D PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) S CALED DOWN ADDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCH ASES TO 10% GROSS PROFIT ON TOTAL PURCHASES FROM THOSE PARTIES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 7.4.1 HOWEVER, AS THE AO HAG NOT DOUBTED PURCHASES ARE TO BE ALLOWED SINCE THERE CANNOT BE PRODUCTION AND SALES THEREOF WITHOUT PURCHASE OF THE MATERIALS. THE GIVEN FACTS AND CIRCUMSTANCES ST RONGLY SUGGEST THAT THE MATERIALS MIGHT HAVE BEEN PURCHASED FROM GREY M ARKET AT A LOWER RATE WHILE ENTRIES IN THE BOOKS OF APPELLANT ARE MA DE AT THE INFLATED PRICES STATED IN THE BOGUS BILLS ISSUED BY THE ALLEGED SUP PLIERS TO HIKE EXPENSES AND REDUCE TAXABLE BUSINESS PROFITS- UNDER SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SIMIT . SHETH 2013 (356 ITR 451) HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CON FIRMING THE DECISION OF THE 1TAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12 .5% OF THE DISPUTED BOGUS PURCHASES TO MEET THE ENDS OF JUSTICE. THE HE AD-NOTE OF THE DECISION IS REPRODUCED AS UNDER: 'SECTION 145 OF THE INCOME-TAX -ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [BOGUS PURCHASES/ - ASSESSMEN T YEAR 2006- 07 - ASSESSES WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND TH AT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPP LIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SALE BILLS, HELD THA T PURCHASES ITA NO.473/MUM/2019 RESHMA J KHAN 4 MADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDINGLY , ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASAESSEE - C OMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE HAD INDEED MA DE PURCHASES, THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, SUSTAINED ADDIT ION TO EXTENT OF 30 PER CENT COST AS PROBABLE PROFIT OF ASSESSES - TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5 PER C ENT- WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM P ARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROF IT ELEMENT EMBEDDED IN SUCH, PURCHASES COULD BE ADDED TO ASSES SEES INCOME - HELD, YES - WHETHER HENCE, ORDER OF TRIBUN AL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6, 7 & 9] /[IN FAVO UR OF ASSESSES'], [EMPHASIS SUPPLIED). 7.5 IN THE INSTANT CASE, NO DOUBT, THE AO HAS M ADE EFFORTS TO EXAMINE THE SO-CALLED SUPPLIERS BY ISSUING NOTICES U/S.L33( 6) BUT COULD NOT SUCCEED SINCE THE AFORESAID PARTIES WAS NOT AVAILABLE AT TH E GIVEN ADDRESS. THEREFORE, THE AO WAS PREVENTED BY & REASONABLE CAU SE FROM GIVING AN OPPORTUNITY TO THE APPELLANT TO CROSS-EXAMINE THE O UTCOME OF HIS ENQUIRY. REGARDING THE INFORMATION RECEIVED FROM DIT(LNV), M UMBAI THE SUMMARY OF THE COMMUNICATION WAS ALREADY PASSED ON TO THE A PPELLANT WHILE COMMUNICATING REASONS FOR REOPENING. DUE TO NON -P RODUCTION OF THE REQUISITE DOCUMENTS, SUCH AS BOOKS OF ACCOUNT, BANK STATEMENTS AND STOCK REGISTER OF THE ALLEGED PARTIES, THE AO WAS P REVENTED FROM PROVING SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUES HAVE COME BACK TO THE APPELLANT HOWEVER, THE ACTIVITIES OF AC COMMODATION ENTRIES IN THE TRADING COMMUNITY ARE NOT UNHEARD OF. FURTHER, THE INVESTIGATIONS CARRIED OUT BY THE SALES TAX DEPARTMENT, ANOTHER GO VERNMENT AGENCY, CANNOT BE LOST SIGHT OF. EVEN THOUGH THERE ARE CATE NA OF CASES BY THE JURISDICTIONS! ITAT WHICH HAVE DECIDED THE ISSUE OF BOGUS PURCHASE IN FAVOUR OF ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS 'JUDICIAL AUTHORITIES ADJUDICATED THE CONTENTIONS AND SUCH CL AIM OF GENUINENESS OF THE ALLEGED BOGUS PURCHASES AS PER FACTS AND CIRCUM STANCES OF EACH CASE PLACED BEFORE THEM. IN MY CONSIDERED OPINION T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE MORE 'AKIN TO THE CASE OF SIMIT P, SHETH (SUPRA.) RESPECTFULLY FOLLOWING THIS DECISION , I UPHOLD THE DECISION OF THE AO IN ADOPTING THE RATE OF 12.5% TO WORK OUT THE PROFIT EMBEDDED IN THE SAID ALLEGED TRANSACTION. HOWEVER, CONSIDER ING THE FACT THAT THE NET PROFIT RANGES BETWEEN 2.20% TO 3.14% IN THE SUBSEQ UENT THREE ASSESSMENT YEARS, 2012-13, TO 2014-15 AS PER 44AB A UDIT REPORT IN FORM NO, 3CD, OF THE RESPECTIVE ASSESSMENT YEARS, MAXIM LAID DOWN IN THE CASE OF ACIT-14(1), MUMBAI VS. SHRI KANTILAL C, JAI N, MUMBAI IN ITA NO. 6924, 6504 & 65O5/MOM/20L4, BY THE JURISDICTIONAL H ONBLE ITAT, BENCH A, MUMBAI, IN ITS ORDER DATED 25 SEPTEMBER, 2017, IS FOLLOWED GIVING BENEFIT OF REDUCING NET PROFIT 2.21% ALREADY OFFE RED IN THE RETURN FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO IS DIRECTED TO COMPUTE THE PROFIT EMBEDDED IN THE 'ALLEGED BOGUS P URCHASES AT 10% OF RS. 1,90,44,057/- AND MAKE ADDITION OF THE SAME, I. E., RS-19,04,406/- TO RETURNED INCOME. THE GROUND IS PARTLY ALLOWED. ITA NO.473/MUM/2019 RESHMA J KHAN 5 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITION OF 12.50% PROFIT ON ALLEGED BOGUS PURCHASES ON THE GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS IS SUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENC E IN THE BACKDROP OF CLEAR FINDING BY THE SALES TAX DEPARTMENT, MAHARASH TRA THAT THOSE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENT RIES WITHOUT ACTUAL DELIVERY OF GOODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDUCTED DURING THE COURSE OF AS SESSMENT PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSES SEE BEFORE THE LOWER AUTHORITIES THAT PURCHASES FROM THE ABOVE PAR TY ARE SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIB LE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND ALS O, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HA VE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE LD.AO. AT THE SAME TIME, THE LD. AO HAD ALSO FAILE D TO TAKE THE INVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING O UT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RE CEIVED FROM ITA NO.473/MUM/2019 RESHMA J KHAN 6 INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT. UN DER THESE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, IN A CASE WHERE PURCHASES ARE CONSIDERED T O BE PURCHASED FROM SUSPICIOUS/HAWALA DEALERS, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGHT OF INVES TIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD THAT IN CASE O F PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA DEALERS, ON LY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAX ED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD C ONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIME OF ESTIMATI ON OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARDSTICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. THE ITAT, M UMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSUE A ND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE GROSS PROFIT OF 10% TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CASE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO HAS MADE 12.50% PROFIT ADDITIONS, WHEREAS THE LD.CIT(A) HAS SCALED DOWN ADDITION TO 10% GROSS PROFIT ON TOTAL ALLEGED BOGUS PURCHASE. ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT RAT E OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, B UT NO ONE COULD SUPPORT SAID RATE OF GROSS PROFIT WITH NECESSARY EV IDENCES OR ANY COMPARABLE CASES. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED OPINIO N THAT THE LD. CIT(A) HAS TAKEN ONE OF THE POSSIBLE METHOD AND EST IMATED 10% GROSS PROFIT ON ALLEGED BOGUS PURCHASES TO SETTLE DISPUTE BETWEEN ITA NO.473/MUM/2019 RESHMA J KHAN 7 THE PARTIES AND HENCE, WE ARE INCLINED TO UPHOLD OR DER OF THE LD. CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE.. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 /02/ 2020 SD/- (SAKTIJIT DEY) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 10 /02/2020 THIRUMALESH SR.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//