SAPPPHIRE INTERNATIONAL, MUMBAI V. DCIT CEN CIR 1(4), MUMBAI

ITA 4876/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8435 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH I,MUM BAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4876/MUM/2016 FOR (ASSESSMENT YEAR : 2007-08 ) M/S SAPPHIRE INTERNATIONAL 102-A, NEW HORMUZD APARTMENT, 131, AUGUST KRANTI MARG, KEMPS CORNER, MUMBAI-400036 PAN: AAAFS7773A VS. DCIT CENTRAL CIRCLE -1(4), OLD CGO BUILDING, ROOM NO. 902, ANNEX, 9 TH FLOOR, M.K. ROAD, WARD- 25(1)(4), MUMBAI-400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL HIRAVAT (AR) REVENUE BY : SHRI SAURABH KUMAR RAI (DR) DATE OF HEARING : 21.02.2017 DATE OF PRONOUNCEMENT : 21.02.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 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)-47 MUMBAI DATED 19.05.2016 FOR ASSESSMENT YEAR (AY) 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL: 1. ON FACTS AND IN LAW, THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) [HEREINAFTER REFERRED TO AS 'LD. CIT(A)'] HAD FAILE D TO APPRECIATE THAT THE ISSUE OF NOTICE U/S.148 BY THE LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS 'LAO') WITHOUT SATISFYING THE JURISDICTIONAL CONDIT IONS PRECEDENT TO ASSUMING JURISDICTION U/S.147 IS WITHOUT JURISDICTION AND BA D-IN-LAW. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, SHE OUGHT TO HAVE HELD THAT THE ISSUE OF NOTICE U/S.148 IS BED-IN-LAW. 2. ON FACTS AND IN LAW, THE LD. CIT(A) HAD FAILED TO C ONSIDER THE SUBMISSIONS OF THE APPELLANT BY ITS PAPER BOOK DATED 04.11.2015 TH AT THE ISSUE OF NOTICE U/S. 148 BY THE LAO PURSUANT TO RECEIPT OF INFORMATION F ROM THE INVESTIGATION WING WITHOUT APPLYING HIS MIND/VERIFICATION IS BED-IN-LA W. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, SHE OUGHT TO HAVE HELD THAT THE PROCEEDINGS U/S. 147 ARE BAD-IN-LAW. 3. ON FACTS AND IN LAW, THE LD. CIT(A) HAD ERRED IN CO NFIRMING THE ADDITION OF RS.89,895/- BEING 7.79% OF THE ALLEGED BOGUS PURCHA SES WITHOUT APPRECIATING 2 ITA NO. 4876 /M/2016 M/S SAPPH IRE INTERNATIONAL. THE CORRECT FACTS OF THE CASE. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, SHE OUGHT TO HAVE DELETED THE SAID ADDITION OF RS.8 9,895/-. 4. ON FACTS AND IN LAW, THE LD. CIT(A) HAD ERRED IN CO NFIRMING THE ADDITION OF RS.89,895/- BY WRONGLY PRESUMING THAT THE APPELLANT HAD LOWERED THE G.P. ON ALLEGED PURCHASES OF RS.11,53,982/-. UNDER THE FACT S AND CIRCUMSTANCES OF THE MATTER, SHE OUGHT TO HAVE DELETED THE SAID ADDITION OF RS.89,895/-. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON. ITAT TO DECIDE THI S APPEAL ACCORDING TO LAW. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF EXPORTS OF DIAMONDS, FILED ITS RETURN OF INCOME FOR RELEVANT A Y ON 05.02.2017 DECLARING TOTAL INCOME OF RS. 21,42,052/-. THE ASSESSMENT ORDER U/S 143(3) WAS PASSED ON 31.12.2008 ASSESSING THE TOTAL INCOME AT RS. 21,24, 050/-. SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED U/S 147 OF THE ACT. THE A O REOPENED THE ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FROM DGIT (INV.) THAT THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILL OF RS. 11,53,982/- FROM M/S DAK SH DIAMOND, WHO WAS INVOLVED IN ISSUING THE BOGUS BILLS. NOTICE U/S148 WAS SERV ED ON ASSESSEE. ASSESSEE CONTESTED THE NOTICE BY FILING OBJECTION DATED 18.11.204. OBJ ECTION OF ASSESSEE WAS REJECTED BY AO. ASSESSMENT U/S 143(3) R.W.S. 147 WAS COMPLETED ON 25.02.2015. THE ASSESSING OFFICER (AO) WHILE PASSING THE FRESH ASSESSMENT ORD ER MADE THE ADDITION OF RS.89,995/- BEING 7.79% OF BOGUS PURCHASES. ON APPE AL BEFORE CIT(A) THE ADDITION ON ACCOUNT OF BOGUS PURCHASES AS WELL AS THE RE-OPE NING WAS SUSTAINED. FURTHER, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 & 2 RAISED IN THE PRESENT A PPEAL RELATES TO THE RE-OPENING OF ASSESSMENT U/S 147 AS BAD-IN-LAW. THE LD. AR OF THE ASSESSEE NOT ARGUED ANYTHING AGAINST THE GROUND NO. 1 & 2. THUS, THE GROUND NO. 1 & 2 IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 3 & 4 RELATES TO THE CONFIRMING OF ADDIT ION OF RS. 89,895/- BEING 7.79% OF THE ALLEGED BOGUS PURCHASES. THE LD. AR OF THE A SSESSEE ARGUED THAT TO PROVE THE GENUINENESS OF PURCHASES THE ASSESSEE FURNISHED COM PLETE DETAILS OF PURCHASES FROM M/S DAKSH DIAMONDS. THE AO MADE THE ADDITION ON THE BASIS OF GROSS PROFIT (G.P) OF THE ASSESSEE-FIRM. IT WAS FURTHER ARGUED THAT G. P. OF THE SAID PURCHASES WAS ALREADY 3 ITA NO. 4876 /M/2016 M/S SAPPH IRE INTERNATIONAL. INCLUDED IN THE PROFIT OF ASSESSEE. THUS, THERE IS A DOUBLE ADDITION. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN DCIT VS. RAJEEV G. KALATHIL (ITA NO. 6727/M/2012) D ATED 20.08.2014. ON THE OTHER HAND, LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE FURTHER ARGUED THAT AFTER THE DECISION OF RAJEEV G. KALATHIL (SUPRA), THE TRIBUNAL IN A NUMBER OF DECISIONS RESTRICTED THE SI MILAR DISALLOWANCE FROM 10% TO 15%, DEPENDING UPON THE FACTS AND CIRCUMSTANCES AS WELL AS ON THE BASIS OF GROSS AND NET PROFIT RATIO. 5. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE LD. REPRESENTATIVES OF THE PARTIES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE A O WHILE PASSING THE ASSESSMENT ORDER, NOTICED THAT ASSESSEE OBTAINED A BOGUS PURCH ASE BILL OF RS. 11,53,982/- FROM M/S DAKSH DIAMONDS. M/S DAKSH DIAMONDS WAS FLOATED BY BHAWARNLAL JAIN GROUP, WHO WAS BOGUS BILL PROVIDER AS PER THE INVESTIGATIO N CONDUCTED BY INVESTIGATION WING AND THE ASSESSEE WAS ONE OF THE BENEFICIARY OF SUCH ACCOMMODATION BILL . THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF PURCHASES, TH E ASSESSEE FIELD HIS REPLY DATED 11.11.2014. IN THE REPLY, THE ASSESSEE CONTENDED TH AT ASSESSEE HAS PURCHASED 211.01 CARAT OF CUT AND POLISHED DIAMOND AT TOTAL COST OF RS. 11,53,982/-, THE PAYMENT WAS MADE THROUGH A/C PAYEE CHEQUE. THE COPY OF BANK STA TEMENT SHOWING THE TRANSACTION WAS FILED. THE ASSESSEE EXPORTED THE SA ID POLISHED DIAMOND TO JAPAN. THE ASSESSEE FURNISHED THE COPY OF EXPORT COLLECTION PA YMENT ALONG WITH BANK STATEMENT. THE REPLY OF ASSESSEE WAS NOT ACCEPTED BY AO HOLDIN G THAT ASSESSEE HAS NOT FURNISHED THE PROFF OF DELIVERY OF GOODS PURCHASED FROM M/S D AKSH DIAMONDS, THE TAX INVOICES ISSUED BY M/S DAKSH DIAMONDS AND THE EXPORT INVOICE S OF ALLEGED CLAIM OF EXPORT DOES NOT TALLY ITEM WISE, SO IT CANNOT BE CONCLUDED THAT GOODS WHICH WAS PURCHASED FROM M/S DAKSH DIAMONDS WAS EXPORTED. AFTER REJECTI NG THE CONTENTION OF ASSESSEE, THE AO EXAMINED THE GROSS PROFIT RATIO OF THE ASSES SEE AND CONSIDERING THE SAME THE AO DISALLOWED 7.79% OF COST OF PURCHASES. THE DISA LLOWANCE WAS WORKED OUT OF RS.89,895/-. BEFORE THE FIRST APPELLATE AUTHORITY, THE SIMILAR CONTENTIONS WERE URGED. AFTER CONSIDERING THE CONTENTION OF ASSESSEE THE L D. CIT(A) PASSED THE FOLLOWING ORDER: 5.2.11 THUS A STUDY OF DIFFERENT CASES WHEREIN ADD ITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN DEALT WITH BY VARIOUS COURTS AND TRIBUNALS SHOWS THAT SUCH ADDITIONS HAVE BEEN UPHELD IN THEIR ENTIRETY ONLY I N A FEW CASES INCLUDING 4 ITA NO. 4876 /M/2016 M/S SAPPH IRE INTERNATIONAL. DECISIONS RENDERED IN THE CASES OF LA MEDICA, SRI G ANESH RICE MILLS, VICKY FOODS (P.) LTD. ETC. WHERE APART FROM VARIOUS OTHER FACTORS THERE WAS LACK OF RELIABLE RECORD WITH REFERENCE TO QUANTITATIVE DETA ILS ETC. AND WHERE EVIDENCE PRODUCED FOR PAYMENT WAS FOUND LACKING. IN OTHER CA SES, WHERE THE FULL QUANTITATIVE DETAILS ARE NOT AVAILABLE OR DETAILS P RODUCED WERE NOT FULLY RELIABLE INASMUCH AS CONSUMPTION OF MATERIAL WAS SHOWN BUT Y IELD WAS TOO LOW AND PAYMENTS WERE ALSO DOUBTFUL (INCLUDING THE CASES OF VIJAY PROTEINS LTD., BHOLANATH POLY FAB PVT. LTD., SIMIT P. SHETH, SANKE T STEEL TRADERS, SATHYANARAYAN P. RATHI ETC.) ADDITION WAS UPHELD WI THIN A RANGE EXTENDING FROM 25% TO 12.5% TO AUGMENT THE POSSIBLE SUPPRESSION IN GP. IN ADDITION, FROM CASES LIKE NIKUNJ EXIMP ENTERPRISES (P.) LTD (HIGH COURT AS WELL AS ITAT), M. K. BROTHERS, NANGALIA FABRICS PVT. LTD., RAJIV G. K ALATHIL ETC., IT EMERGES THAT OTHER ASPECTS SUCH AS STATEMENTS OF HAWALA PROVIDER S RECORDED BY SALES TAX AUTHORITIES; AFFIDAVITS FILED BY SUCH SUPPLIERS BEF ORE SALES TAX AUTHORITIES; ABSENCE OF EVIDENCE IN SUPPORT OF TRANSPORTATION/DE LIVERY OF MATERIAL ETC., HAVE BEEN HELD AS MERE INDICATORS AND NOT DECISIVE FACTO RS WITH REFERENCE TO THE GENUINENESS OF PURCHASES. THUS IN ESSENCE, THE BENE FIT DERIVED BY THE ASSESSEE BY SHOWING PURCHASES FROM SUCH BOGUS PARTIES IS THE LO WERING OF GP THAT WOULD HAVE BEEN EARNED BY THE ASSESSE HAD SUCH PURCHASES AND CORRESPONDING SALES BEEN REMOVED FROM THE ACCOUNTS. IN OTHER WORDS, THE EFFECTIVE LOWERING OF THE GP IS THE REAL ADDITIONAL INCOME OF THE ASSESSEE BY SHOWING SUCH PURCHASES AND ONLY SUCH COMPONENT WOULD THEREFORE BE TAXABLE. 6. WE HAVE NOTICED THAT THE AO AS WELL AS LD. CIT(A) E LABORATELY DISCUSSED THE CONTENTION RAISED BY ASSESSEE. THE LD. CIT(A) SUSTA INED THE ORDER OF AO AFTER CONSIDERING THE GROSS PROFIT RATIO. WE HAVE ALSO CO NSIDERED THE CONTENTION OF LD. AR OF THE ASSESSEE THAT SUSTAINING THE DISALLOWANCE @ 7.79% OF THE ALLEGED BOGUS PURCHASES WOULD BE AMOUNT TO DOUBLE ADDITION. WE FI ND NO FORCE IN THE SUBMISSION OF LD. AR OF THE ASSESSEE. THE ADDITION/DISALLOWANCE W AS MADE BY ASSESSING OFFICER WHEN ASSESSEE FAILED TO PROVE THE GENUINENESS OF PU RCHASES. HENCE, THE CONTENTION OF THE ASSESSEE HAS NO FORCE. HENCE, WE AFFIRM THE ORD ER OF LOWER AUTHORITIES. IN THE RESULT, APPEAL OF THE ASSESSEE I S DISMISSED, NO ORDER AS TO COST. ORDER PRONOUNCED IN THE O PEN COURT ON THIS 21 ST FEBRUARY, 2017. SD/- SD/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 21 /02/2017 S.K.PS 5 ITA NO. 4876 /M/2016 M/S SAPPH IRE INTERNATIONAL. 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/