INCOME TAX OFFICER-19(1)(2), MUMBAI V. ASHISH V. GANDHI, MUMBAI

ITA 4893/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6337 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 13-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: M K PATEL; R S CHOKSI
• Keywords: Bogus purchase; Search and seizure; Accommodation entries; Reassessment proceedings
• Section: 143(3); 143(1); 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4893/MUM/2017 ASSESSMENT YEAR: 2007 - 08 ITO - 19(1)(2), ROOM NO. 204, MATRUMANDIR, MUMBAI - 400020. VS. ASHISH V. GANDHI 501, SHIRIN APARTMENTS, TARDEO, MUMBAI - 400007. PAN NO. AAFOG5444F APPELLANT RESPONDENT REVENUE BY : M R. V. JUSTIN , DR ASSESSEE BY : MR. R.S. CHOKSI & MS. M.K. PATEL , AR S DATE OF HEARING : 06/1 1/201 8 DATE OF PRONOUNCEMENT : 28/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 30 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE EFFECTIVE GROUNDS OF APPEAL R EAD AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF @ 3% ON BOGUS PURCHASES OF RS. 3, 76,56,327/ - MADE FROM M/S MOHIT ENTERPRISES, M/S AZ JEWELS AND M/S ASHISH V. GHANDI ITA NO. 4893/MUM/2017 2 SHREE BALAJI INTERNATIONAL, WHICH ARE GROUP CONCERN OF M/S BHANWARLAL GROUP OF COMPANIES, WHO WERE IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES AS ESTABLISHED BY THE INVESTIGATION WING CONSEQUENT TO SEARCH ACTION U/S 132 OF THE I.T. ACT, 1961. 2. WHETH ER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN NOT APPRECIATING THE FACT THAT DURING THE SEARCH AND SEIZURE OPERATION, DIRECTORS OF SUCH PARTIES HAVE ACCEPTED ON OATH THAT THEY ARE PROVIDING ONLY ACCOMMODATION ENT RIES AND NOT DOING ANY REAL BUSINESS, THE TREATMENT OF SUCH PURCHASES AS BEING GENUINE DOES NOT HOLD GROUND. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2007 - 08 ON 28.09.2007 DECLARING TOTAL I NCOME AT RS.11,07,490/ - . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT. THERE WAS A SEARCH AND SEIZURE ACTION CONDUCTED BY THE DIRECTOR GENERAL OF INCOME TAX (INV), MUMBAI [IN SH ORT DGIT(INV.)] ON SHRI BHANWARLAL JAIN & HIS GROUP CONCERN ON 03.10.2013. AS PER THE DOCUMENTS FORWARDED BY THE DGIT (INV.), THE ASSESSING OFFICER ( AO ) NOTICED THAT THE ASSESSEE HAD OBTAINED ACCOMMODATION ENTRIES OF BOGUS PURCHASES FROM THE FOLLOWING CONC ERNS OF SHRI BHANWARLAL JAIN & HIS GROUP DURING THE FINANCIAL YEAR 2006 - 07 RELEVANT TO THE AY 2007 - 08 : SR. NO. NAME OF THE ENTRY ISSUER FIN. YEAR AMOUNT (RS.) 1. MOHIT ENTERPRISES 2006 - 07 1,22,04,825/ - 2. AZ JEWELS 2006 - 07 2,04,97,647/ - 3. SHREE BALAJI INTERNATIONAL 2006 - 07 49,53,855/ - TOTAL 3,76,56,327/ - ASHISH V. GHANDI ITA NO. 4893/MUM/2017 3 ON THE BASIS OF THE ABOVE INFORMATION, THE AO ISSUED NOTICE U/S 148 FOR REOPENING THE ASSESSMENT. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, HAVING EXAMINED THE DETAILS, THE AO ARRIVED AT A FINDING THAT (I) THE CONCERNED PARTIES WERE ISSUING BILLS WITH OUT DELIVERING ANY GOODS AND SERVICES, (II) THE ASSESSEE HAD ADOPTED A MODUS OPERANDI TO REDUCE HIS TRUE PROFITS BY INFLATING ITS EXPENSES BY TAKING ACCOMMODATION ENTRIES FROM SUCH PARTIES, (III) IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE PURCHASES TO T HE EXTENT MADE FROM THE ABOVE PARTIES REMAINED UNVERIFIABLE, (IV) MERE FILING OF EVIDENCE IN SUPPORT OF PURCHASES AND PAYMENT THROUGH ACCOUNT PAYEE CHEQUE CANNOT BE CONCLUSIVE IN A CASE WHERE GENUINENESS OF TRANSACTION IS I N DOUBT; PAYMENT BY ACCOUNT PAYEE CHEQUES ARE NOT SACROSANCT. WITH THE ABOVE OBSERVATIONS, THE AO HELD THAT THE ASSESSEE INDULGED IN NON - GENUINE TRANSACTION AND BROUGHT THE ABOVE SUM OF RS.3,76,56,327/ - TO TAX. 4. AGGRIEVED BY THE ORDER OF THE AO, THE AS SESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). IN THE ORDER DATED 09.03.2017, T HE LD. CIT(A) HAS OBSERVED THAT TWO ASPECTS NEED TO BE TAKEN INTO CONSIDERATION IN SUCH CIRCUMSTANCES APART FROM THE TAXES NOT PAID ON SUCH GREY MARKET PURCHASES. FIRST, THESE DI AMONDS IN THE GREY MARKET ARE ALWAYS CHEAPER THAN THE DIAMONDS SOURCED FROM THE GENUINE DEALER. THIS IS BECAUSE, THE GENUINE DEALER WOULD CHARGE HIS INCIDENTAL COST INCLUDING THE WHOLE ADMINISTRATIVE COST WHILE SELLING THE GOODS IN THE MARKET, WHEREAS THE PETTY DEALERS IN THE GREY MARKET DO NOT CARRY SUCH INCIDENTAL CHARGES ON SUCH SALES, WHEREIN THEY ARE ONLY LOOKING FOR A QUICK PROFIT. SECONDLY, ASHISH V. GHANDI ITA NO. 4893/MUM/2017 4 THERE IS ALWAYS AN ELEMENT OF DISCOUNT IN TH E CASE OF INSTANT CASH PURCHASE. T HUS THE LD. CIT(A) HELD AS UNDER: TAKING INTO CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD AND THE AO HIMSELF ADOPTED 3% AS THE PROFIT MARGIN ON THE TOTAL PURCHASES IN THE SUBSEQUENT SCRUTINY ASSESSMENT PASSED FOR THE AYS 2011 - 12, 12 - 13 AND 13 - 14, ON THE TOTAL PURCHASES FOR THOSE YEARS BY STATING THE ABOVE STATED REASONS WHICH ARE CONVINCING, AND ALSO ONE OF THE PARTY IS COMMON FOR THIS ASSESSMENT YEAR, IN MY CONSIDERED OPINION, IF THE SAME PERCENTAGE IS ADOPTED FOR THIS YEAR IT WILL T AKE CARE THE ADDITIONAL PROFIT MARGIN GAINED FROM THE NON - GENUINE TRANSACTIONS ENTERED WITH THE DUMMY CONCERNS OF SHRI BHANWARLAL JAIN GROUP. IN VIEW OF THE ABOVE, AO IS DIRECTED TO RESTRICT THE ADDITION @ 3% ON THE PURCHASES OF RS.3,76,56,327/ - MADE FROM THE THREE PARTIES, AS THE PROFIT ELEMENT EMBEDDED FOR THIS YEAR ALSO. ACCORDINGLY, THE ISSUE RAISED IN THE GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED . 5. BEFORE US, THE LD. DR SUBMITS THAT THE BOGUS PURCHASES AMOUNTING TO RS.3,76,56,327/ - WERE MADE FROM M/S MOHIT ENTERPRISE, M/S AZ JEWELS AND M/S SHREE BALAJI INTERNATIONAL, WHICH ARE GROUP CONCERNS OF M/S BHANWARLAL GROUP OF COMPANIES, WHO WERE IN THE BUSIN ESS OF PROVIDING ACCOMMODATION ENTRIES AS FOUND DURING THE COURSE OF SEARCH ON 03.10.2013 BY THE DGIT (INV), MUMBAI. IT IS STATED BY HIM THAT THE DIRECTORS OF SUCH PARTIES HAVE ACCEPTED ON OATH THAT THEY ARE PROVIDING ONLY ACCOMMODATION ENTRIES AND NOT DOI NG ANY REAL BUSINESS. THEREFORE, THE LD. DR SUBMITS THAT THE ESTIMATION @ 3% ADOPTED BY THE LD. CIT(A) FOR ARRIVING THE PROFIT ON SUCH BOGUS PURCHASES IS WITHOUT ANY BASIS AND THE ADDITION OF RS.3,76,56,327/ - MADE BY THE AO BE RESTORED. ASHISH V. GHANDI ITA NO. 4893/MUM/2017 5 6. ON THE OTHER HA ND, THE LD. COUNSEL OF THE ASSESSEE FILES A COPY OF THE ORDER OF THE ITAT C BENCH MUMBAI IN THE CASE OF ACIT V. M/S ZODIAC JRD MKJ LTD . (ITA NO. 1561 & 1562/MUM/2017) AND CO NOS. 197 & 198/MUM/2017 FOR THE AYS 2007 - 08 & 2009 - 10 AND SUBMITS THAT FACTS BEI NG IDENTICAL, THE ORDER OF THE LD. CIT(A) ESTIMATING THE PROFIT @ 3% OF SUCH DISPUTED PURCHASES BE CONFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. A PERUSAL OF THE ASSESSMENT ORDER DATED 30.03.2015 PASSED B Y THE AO CLEARLY INDICATES THAT HE HAS RELIED ON THE FINDINGS BY THE DGIT (INV), MUMBAI ON THE SEARCH AND SEIZURE ACTION CONDUCTED IN THE CASE OF SHRI BHANWARLAL JAIN AND HIS GROUP CONCERN ON 03.10.2013. NO INDEPENDENT INQUIRY HAS BEEN MADE BY THE AO. NO C ORROBORATIVE EVIDE NCE HAS BEEN GATHERED BY THE AO. A SIMILAR ISSUE WAS THERE BEFORE THE TRIBUNAL IN THE CASE OF M/S ZODIAC JRD MKJ LTD. (SUPRA). IN THAT CASE ALSO PURCHASES WERE MADE FROM BHANWARLAL JAIN GROUP. THE TRIBUNAL, OBSERVING THAT ONLY THE PROFI T ELEMENT EMBEDDED IN SUCH PURCHASES BE BROUGHT TO TAX, CONFIRMED THE ESTIMATION @ 3% ADOPTED BY THE LD. CIT(A) ON SUCH BOGUS PURCHASES. FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDER OF THE CO - ORDINATE BENCH AND UPHOLD THE ORDER OF THE LD. CIT(A). ASHISH V. GHANDI ITA NO. 4893/MUM/2017 6 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/01/2019. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 28/ 01/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI