ITO-26(2)(5), Mumbai V. SHRI RAMESH C GALA, Mumbai

ITA 474/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5809 (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
• Keywords: Bogus purchase; Accommodation entries; Set aside
• Section: 133(6); 143(1); 147

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.474/MUM/2019 ( ASSESSMENT YEAR: 2010-11 ) ITO-26(2)(5) ROOM NO.506, 5 TH FLOOR C-11, BANDRA KURLA COMPLEX BANDRA(E) MUMBAI-400 051 VS. RAMESH C GALA ROOM NO.9, 2 ND FLOOR BLDNG NO.14, BMC BUILDING SION-KOLIWADA SAKINAKA MUMBAI-400 072 PAN/GIR NO. A MFPG1277J ( APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI ASHISH KUMAR, DR ASSESSEE BY NONE 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 30/08/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2010-11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN TAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO 20% OF THE TOTAL AMOUNT OF BOGUS PURCHASE TRANSACTION INSTEAD OF 25% OF THE TOTAL AMOUNT OF BOGUS PURCHASE MADE BY THE AO 2 ON 1HE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE 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 SAL ES TAX DEPARTMENT, MAHARASHTRA WITH REGARD TO BOGUS PURCHASE MADE BY T HE ASSESSED FROM DEALERS WITHOUT SUPPLY OF ACTUAL GOODS.' ITA NO.474/MUM/2019 RAMESH C GALA 2 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CLT(A] HAS ERRED IN NOT CONSIDERING THAT THE HAW ALA OPERATORS HAVE ADMITTED ON OATH BEFORE THE SALES TAX AUTHORITIES T HAT THEY HAVE NOT SOLD ANY MATERIAL TO ANYBODY.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A] HAS ERRED IN NOT CONSIDERING THAT THE AS SESSES COULD NOT PROVE THE GENUINENESS AND CREDIT WORTHINESS OF THE PURCHA SE TRANSACTIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS.' 5. 'THE LD. CIT(A) FAILED TO UPHOLD THE DECISION OF HON'BLE APEX COURT IN THE CASE OF N K PROTEINS LTD. VS. DCIT IN SLP (CI VIL} NO.769/2017 DATED 16/01/2017 WHERE 100% OF ADDITION WAS CONFIRMED BY THE APEX COURT' 6. 'ON THE FACTS AND IN 1HE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD, CIT(A) ERRED IN NOT APPRECIATING THE TACT THAT APPL ICABILITY 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.' 8. 'THE APPELLANT CRAVES LEAVE TO AMEND OR TO AFT ER ANY GROUND OR ADD A GROUND, WHICH MAY BE NECESSARY.' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF MANUFACTU RING OF STAINLESS STEEL UTENSILS, FILED HIS RETURN OF INCOME FOR AY 2 010-11 ON 15/10/2010 DECLARING TOTAL INCOME OF RS. 1,83,920/- AND SAID RETURN WAS PROCESSED U/S 143(1) OF THE I.T.ACT, 1961. THE CASE HAS BEEN SUBSEQUENTLY REOPENED U/S 147 OF THE ACT, ON THE BA SIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMB AI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHAR ASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WH O HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI A ND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE O F THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASE S FROM JAI STEEL & ALLOYS AMOUNTING TO RS. 5,05,868/-. THE CAS E WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R.W.S. 147 OF THE I.T.ACT, 1961 ON 23/08/201 6 AND DETERMINED TOTAL INCOME OF RS. 3,10,390/-, AFTER MAKING 25% AD DITIONS TOWARDS ITA NO.474/MUM/2019 RAMESH C GALA 3 ALLEGED BOGUS PURCHASE FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 1,26,467/-. 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 ON PAGES 7 TO 9 OF LD.CIT(A) O RDER. 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 20% GROSS PROFIT ON TOTAL PURCHASES FROM THOSE PARTIES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- FROM THE ABOVE CHART IT IS SEEN THAT THE GROSS AND NET PROFIT RATIOS, BEING 19.69% AND 4.80% RESPECTIVELY DECLARED IN THE RETU RN FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ARE HIGHER THAN THE AVERAGE GROSS & NET PROFIT RATIOS OF 15-80% AND 3.92% RESPECTIVEL Y, HOWEVER, KEEPING IN MIND INFLATION IN THE PURCHASES RECORDED IN THE BOOKS OF THE APPELLANT AS PER THE ALLEGED PURCHASE INVOICES ISSUED BY THE ALLEGED SUPPLIER AND THE COST-SAVING BENEFITS THE APPELLANT HAS AVAILED IN MAKING PURCHASES FROM THE GREY MARKET, THE RATE OF 25%, ADOPTED BY T HE AO TO WORK OUT THE PROFIT ELEMENT EMBEDDED IN THE AFORESAID ALLEGED BO GUS PURCHASES IS CONSIDERED TO BE APPROPRIATE TAKING INTO ACCOUNT TH E NATURE OF BUSINESS OF THE APPELLANT BEING THAT OF MANUFACTURING STAINLES S STEEL UTENSILS AND THE MATERIAL PURCHASED BEING RAW MATERIAL. IN THIS REGA RD, IN VIEW OF (HE FACT THAT PROFIT AT 4.80% HAS ALREADY BEEN OFFERED FOR T AX, RESPECTFULLY FOLLOWING THE MAXIM LAID DOWN BY THE JURISDICTIONS! TRIBUNAL, BENCH H , MUMBAI IN THE CASE OF M/S. RATNAGIRI STAINLESS (P.) LTD. VS. INCOME-TAX OFFICER, 5(3)(L), MUMBAI IN ITA NO. 4463 (MUM.) OF 2016, DAT ED APRIL 4, 2017, ASSESSMENT YEAR 2009-10, 4,80% IS REDUCED FROM 25% (25-4.30=20.20 TAKEN AS 20%) AND 20% IS ADOPTED TO COMPUTE THE PRO FIT EMBEDDED IN SUCH TRANSACTIONS WHICH WORKS OUT TO RS.1,01,174/-. THE AO IS DIRECTED TO ITA NO.474/MUM/2019 RAMESH C GALA 4 ADD THE SAME TO TOTAL INCOME DECLARED IN THE RETURN FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION- ACCORDINGLY TH IS GROUND OF APPEAL IS PARTLY ALLOWED. 5. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD TH E LD. DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITION TOWARDS 25% PROFIT ON ALLEGED BOGUS PURCHASES ON TH E GROUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODA TION ENTRIES OF BOGUS PURCHASE BILLS ISSUED BY HAWALA DEALERS. ACCO RDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDEN CES, BUT FAILED TO FILE FURTHER EVIDENCE IN THE BACKDROP OF CLEAR FIND ING BY THE SALES TAX DEPARTMENT, MAHARASHTRA THAT THOSE PARTIES ARE INVO LVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDU CTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTI CE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-SERVED BY TH E POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION T HAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE. IT IS TH E CONTENTIONS OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT PURCHASE S FROM THE ABOVE PARTY ARE SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; ST OCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID P URCHASES 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 ITA NO.474/MUM/2019 RAMESH C GALA 5 INVESTIGATION TO A LOGICAL CONCLUSION BY CARRYING O UT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RE CEIVED FROM 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 25% PROFIT ADDITIONS, WHEREAS THE LD.CIT(A) HA S SCALED DOWN ADDITION TO 20% 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 VIEW T HAT THE LD. CIT(A) HAS TAKEN ONE OF THE POSSIBLE METHOD AND ESTIMATED 20% GROSS ITA NO.474/MUM/2019 RAMESH C GALA 6 PROFIT ON ALLEGED BOGUS PURCHASES TO SETTLE DISPUT E BETWEEN THE PARTIES AND HENCE, WE ARE INCLINED TO UPHOLD ORDER 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//