KARAN RAMCHAND MORANI, MUMBAI V. INCOME TAX OFFICER WARD 22(2)(1), MUMBAI

ITA 4829/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 10-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: NEELKHANTH KHANDELWAL
• Keywords: Bogus purchase

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NOS. 4827 TO 4830/MUM/2018 (ASSESSMENT YEARS: 2012-13, 2009-10, 2011-12 & 200 7-08) SHRI KARAN RAMCHAND MORANI A/2, 6TH FLOOR, LOK NIRMAN 15TH ROAD, KHAR (W) MUMBAI 400052 VS. INCOME TAX OFFICER - 22(2)(1) PIRAMAL CHAMBERS 3RD FLOOR, PAREL MUMBAI 400013 PAN AFIPM1051Q APPELLANT RESPONDENT APPELLANT BY: SHRI NEELKHANTH KHANDELWAL RESPONDENT BY: SHRI CHAITANYA ANJARIA DATE OF HEARING: 21.08.2019 DATE OF PRONOUNCEMENT: 05.11.2019 O R D E R PER SHAMIM YAHYA, AM THESE ARE APPEALS BY THE ASSESSEE WHEREIN THE ASSES SEE IS AGGRIEVED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING 25% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES, VIDE COMMON ORDER DATED 31.05.2018 PERTAINING TO ASSESSMENT YEARS 2007-08, 2009-10, 20 11-12 & 2012013. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN TH IS CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF JEWELL ERY. ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF INFORMATION FROM DEPARTMENTAL INVESTIGATION WING FOR INVESTIGATION IN BHANWARLAL JAIN GROUP THAT ASSESSEE HAS MADE BOGUS PURCHASES. THE ASSESSEE SUB MITTED THE PURCHASE VOUCHERS AND PAYMENTS WERE MADE THROUGH BA NKING CHANNEL. THE SUPPLIERS ALSO RESPONDED TO THE NOTICE OF THE A SSESSING OFFICER. SALES IN THIS CASE WERE NOT DOUBTED. THE INCOME TAX OFFIC ER IN THIS CASE HAS MADE 25% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESU LTING IN DISALLOWANCE OF ` 7,21,397/- IN A.Y. 200708, ` 1,24,980/- IN A.Y. 2009-10, ` 3,76,975/- IN A.Y. 2011-12 AND ` 9,20,390/- IN A.Y. 2012-13. ITA NOS. 4827 TO 4830/MUM/2018 SHRI KARAN RAMCHAND MORANI 2 3. UPON APPEALS FILED BY THE ASSESSEE THE LEARNED CIT (A) HAS CONFIRMED THE SAME. AGAINST THE ABOVE ORDER THE ASSESSEE IS I N APPEAL BEFORE THE ITAT. 4. I HAVE HEARD BOTH THE LEARNED COUNSEL AND PERUSED T HE RECORDS. UPON CAREFUL CONSIDERATION I FIND THAT THE ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. THE SUPPLIER S HAVE ALSO RESPONDED TO THE NOTICE OF THE AO AND SUBMITTED THE IR INCOME TAX RETURNS AND BANK STATEMENTS. I FIND THAT IN THIS CASE THE S ALES OR OTHER WORKINGS HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE . THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES . THIS PROPOSITION IS SUPPORTED BY THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO. 2860 , ORDER DATED 18.06.2014). IN THIS CASE THE HON'BLE HIGH COURT HA S UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN S ALES ARE NOT DOUBTED. HOWEVER, IN THAT CASE ALL THE SUPPLIES WERE TO GOVE RNMENT AGENCY. IN THE PRESENT CASE THE FACTS INDICATE THAT THE ASSESSEE H AS MADE PURCHASES FROM GREY MARKET. MAKIN PURCHASES THROUGH THE GREY MARKE T GIVES THE ASSESSEE ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PRO FIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASES BY T HE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE OR DER THIS TRIBUNAL IN THE CASE OF M/S. DINAL DIAMONDS, ITA NO. 6102/MUM/2017 FOR A.Y. 2007-08 ORDER DATED 05.03.2019 WHEREIN THE TRIBUNAL HELD AS UNDER: - 10. UPON CAREFUL CONSIDERATION WE FIND THAT THE A SSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN BY THE A.O. ON THE INVESTI GATION WING ACTION ON GAUTAM JAIN GROUP. NO INDEPENDENT ENQUIRY HAS BE EN CONDUCTED BY THE A.O. HIMSELF. WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE NOT DOUBTED, 100% DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM THE HON'BLE JURISDICTIONAL HIGH COUR T DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014). IN THIS CASE, THE HONBLE HIGH COURT HA S UPHELD 100% ITA NOS. 4827 TO 4830/MUM/2018 SHRI KARAN RAMCHAND MORANI 3 ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN S ALES ARE NOT DOUBTED. HOWEVER, IN THAT CASE ALL THE SUPPLIES WER E TO THE GOVERNMENT AGENCY. IN THE PRESENT CASE, THE FACTS O F THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKE T. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSESSE E SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXP ENSE OF THE EXCHEQUER. IN SUCH SITUATION, IN OUR CONSIDERED OPI NION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, 3% DISALLOWANCE OUT OF THE BOGUS PURCHASES MEETS THE END OF JUSTICE, AS REASONED BY THE LD. CIT(A) ABOVE. THE CASE LAW QUOTED BY THE REVENUE IN THE GR OUNDS OF APPEAL IS A DISMISSAL OF SLP SIMPLICITOR BY THE HON'BLE AP EX COURT. IT DOES NOT MEAGRE THE ORDER OF THE HON'BLE APEX COURT WITH THA T. 5. I FIND THAT THE RATIO OF THE ABOVE DECISION CAN BE FOLLOWED HERE. THE SUPPLIERS IN THIS CASE HAVE ALSO RESPONDED TO AOS NOTICE. THE AO HAS MADE SOME VAGUE OBSERVATIONS IN REJECTING ASSESSEE S CLAIM. HENCE, FOLLOWING THE ABOVE PRECEDENT I DIRECT THAT DISALLO WANCE SHOULD BE RESTRICTED TO 3% OF BOGUS PURCHASES. 6. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER, 2019. SD/ - (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED: 5 TH NOVEMBER, 2019 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -34, MUMBAI 4. THE PR.CIT - 22, MUMBAI 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.