ITO 27(3)(4), NAVI MUMBAI V. THAKARSHI LAXMIDAS JOISHER, THANE

ITA 5145/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9714 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: PARESH SHAH
• Keywords: Bogus purchase; Peak credit
• Section: 69C; 40A(3); 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 5145/MUM/2015 (ASSESSMENT YEAR-2009-10) ITO 27(3)(4), 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI. VS. SHRI THAKARSHI LAXMIDAS JOISHER A-2, 203, HARMONY RESIDENCY, TARAPUR ROAD, BOISAR (W), THANE-401501. PAN: AABPJ6682J (APPELLANT) (RESPONDENT) REVENUE BY : SHRI V. JUSTIN (SR.DR) ASSESSEE BY : SHRI PARESH SHAH -AR DATE OF HEARING : 31.07.2017 DATE OF PRONOUNCEMENT : 31 .07.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY REVENUE U/S 253 OF THE INCOME-TAX AC T (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-25, MUMBAI DATED 03.08.2015 FOR ASSESSMENT YEAR (AY) 2009-10. THOUGH THE REVENUE HA S RAISED AS MANY AS FOUR GROUNDS OF APPEAL, HOWEVER, AS PER OUR CONSIDE RED VIEW, THE SOLE GROUND OF APPEAL IS IF THE LD. CIT(A) ERRED IN SUS TAINING THE DISALLOWANCE BY APPLYING GROSS PROFIT (G.P.) RATE OF 8.4% ON ACC OUNT OF BOGUS PURCHASES. RESTS OF THE GROUNDS OF APPEAL ARE NARR ATION OF FACTS OR ARGUMENTATIVE IN NATURE. ITA NO. 5145/M/2015- SHRI THAKARSHI LAXMIDAS JOISHER 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS PR OPRIETOR OF M/S JIGNA ENTERPRISES, ENGAGED IN THE BUSINESS OF SELLING OF IRON, PLASTIC DRUMS AND BARRELS, FILED HIS RETURN OF INCOME FOR RELEVANT AY ON 26.09.2009 DECLARING TOTAL INCOME AT RS. 6,17,880/-. THE RETURN WAS PROC ESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE RETURN WAS RE-OPENED AFTER R ECORDING THE REASONS OF RE-OPENING AND ACCORDINGLY NOTICE U/S 148 DATED 24. 03.2014 WAS SERVED UPON THE ASSESSEE. THE ASSESSMENT WAS COMPLETED UN DER SECTION 143(3) RWS 147 ON 28/01/2015. THE AO WHILE PASSING THE ORDER M ADE ADDITION OF RS.56,86,919/- UNDER SECTION 69C ON ACCOUNT OF BOGU S PURCHASES. ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS RESTRIC TED TO 8.4%. THUS, OUT OF TOTAL DISALLOWANCE, THE ASSESSEE WAS GRANTED RELIEF OF RS. 52,08,004/-. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE R EVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR FOR THE REVENUE ARG UED THAT THE LD. CIT(A) WRONGLY DELETED THE ADDITION ON THE BASIS OF G.P. R ATIO. IT WAS FURTHER ARGUED THAT ENTIRE DISALLOWANCE, DISALLOWED BY AO ON THE B ASIS OF PEAK CREDIT SHOULD HAVE BEEN SUSTAINED BY LD. CIT(A). ON THE OT HER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE ASSESSM ENT WAS REOPEN UNDER ITA NO. 5145/M/2015- SHRI THAKARSHI LAXMIDAS JOISHER 3 SECTION 147 , BY ISSUING NOTICE UNDER SECTION 148 D ATED 24/03/2014. IN RESPONSE TO THE NOTICE U/S 148, THE ASSESSEE CONTEN DED THAT RETURN ALREADY FILED MAY BE TREATED AS RETURN IN RESPONSE TO THE S AID NOTICE. ACCORDINGLY, THE ASSESSING OFFICER (AO) PROCEEDED TO PASS THE RE -ASSESSMENT ORDER, THE AO WHILE FRAMING THE RE-ASSESSMENT ORDER NOTICED TH AT ASSESSEE HAS DEBITED A PURCHASE OF RS. 1,60,45,864/-. ACCORDINGLY, THE D ETAILS WERE REQUIRED FROM THE ASSESSEE ABOUT SUCH PURCHASES. ON FURNISHING TH E DETAILS, THE NOTICES WERE SENT TO SIX PARTIES. THE NOTICES SENT TO ALL T HE PARTIES WERE RETURNED BACK. THE ASSESSEE WAS ASKED TO FURNISH THE CURRENT ADDRESS AND CONTACT NUMBER OF ALL THE SIX PARTIES. THE ASSESSEE WAS ALS O INFORMED THAT NOTICES SENT TO ALL SIX PARTIES HAVE RETURNED BACK. THE ASS ESSEE WAS ASKED TO PRODUCE THE PARTIES IN ORDER TO VERIFY THE IDENTITY OF THE PARTIES AND GENUINENESS OF THE PURCHASES. THE ASSESSEE COULD NOT PRODUCE THOSE PARTIES. THE ASSESSEE FURNISHED ITS REPLY DATED 04.09.2014 AND CONTENDED THEREIN THAT THE ASSESSEE IS RE-SELLER OF IRON AND PLASTIC BARRELS. DURING TH E YEAR, THE ASSESSEE HAS PAID THE VAT OF RS. 3,69,922/- ON TOTAL PURCHASE OF RS. 53,15,672/- ON ACCOUNT OF PURCHASE OF RS.56,85,594/-. THE ASSESSEE ALSO FU RNISHED THE CORRESPONDING SALES AND THE STOCK-REGISTER. THE ASS ESSEE FURTHER CONTENDED THAT PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQU E AND THE WHOLE OF THE PURCHASES WERE GENUINE. THE ASSESSEES CONTENTI ON WAS NOT ACCEPTED BY AO HOLDING THAT THE ONUS LYING UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE WHICH IS CLAIMED AS DEDUCTION IN COMPUTING THE TAXABLE ITA NO. 5145/M/2015- SHRI THAKARSHI LAXMIDAS JOISHER 4 INCOME AND THAT ONUS LIE UPON THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES. IT WAS CONCLUDED BY AO THAT MERE PAYMEN TS THROUGH ACCOUNT PAYEE CHEQUE IS NOT ENOUGH TO PROVE THE EXISTENCE O F THE PARTIES. THE AO FURTHER CONCLUDED THAT IN ORDER TO AVOID THE DISALL OWANCE U/S 40A(3) OF THE ACT, BILLS ARE TAKEN FROM THE HAWALA OPERATOR ARE R ECEIVED BACK IN CASH. ON THE BASIS OF PEAK CREDIT, THE AO ADDED AN UNEXPLAIN ED EXPENDITURE U/S 69 OF RS. 50,86,919/- IN THE ORDER PASSED U/S 143(3) R.W. S 147 OF THE ACT DATED 28.01.2015. THE AO MADE THE DISALLOWANCE ON THE BAS IS OF PEAK CREDIT STANDING IN THE NAME OF ALLEGED BOGUS PARTIES. WE H AVE NOTICED THAT THE ASSESSEE HAS DEBITED A TOTAL PURCHASES OF RS. 1,60, 45,864/-. THE AO DISALLOWED THE PURCHASES OF AGGREGATE OF TOTAL PURC HASES FROM THE SIX PARTIES. DURING THE FIRST APPELLATE STAGE THE LD. C IT(A) OBSERVED THAT THE AO SHOULD HAVE GONE TO VERIFY THE RELEVANT TRANSACTION . AND TO VERIFY IF THE MATERIAL HAD REALLY BEEN RECEIVED BY THE PARTIES AN D HOW THE STOCK WAS RECEIVED AND TO KNOW THE ACTUAL STATE OF TRANSACTIO N. THE LD. CIT(A) FURTHER OBSERVED THAT BOOKS OF ACCOUNT OF ASSESSEE WAS NOT REJECTED BY AO. MOREOVER, THE PARTIES WHO HAD ALLEGEDLY SUPPLIED TH E GOODS WERE FOUND TO BE NON-GENUINE BY SALES TAX DEPARTMENT BY INVESTIGA TION CARRIED OUT BY DGIT (INVESTIGATION), MUMBAI. THE LD. CIT(A) ON THE BASIS OF ABOVE OBSERVATION CONCLUDED THAT WHERE THE PURCHASES MADE FROM BOGUS PARTIES BUT PURCHASES ITSELF WERE NOT BOGUS, THE ONLY PROFI T MARGIN EARNED IN SUCH PURCHASES WOULD BE SUBJECT TO TAX AND NOT THE ENTIR E PURCHASES. THE LD. ITA NO. 5145/M/2015- SHRI THAKARSHI LAXMIDAS JOISHER 5 CIT(A) MADE THE RELIANCE IN CIT VS. SIMIT P. SHETH (356 ITR 451). ON THE BASIS OF G.P. OFFERED BY ASSESSEE IN THE YEAR UNDER CONSIDERATION @ 8.4% OF THE PURCHASES OF RS. 56,85,594/-. THUS, GRANTED A R ELIEF OF RS. 54,08,004/-. 5. WE HAVE CONSIDERED THE FACT OF THE PRESENT CASE IND EPENDENTLY. IN OUR CONSIDERED VIEW THAT EVEN IF THE TRANSACTION IS NOT VERIFIABLE, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION. FURTHER, WE ARE OF THE VIEW THAT IN ORDER TO FULFIL L THE GAP OF REVENUE LEAKAGE, THE DISALLOWANCE WAS REASONABLE PERCENTAGE WOULD MEET THE END OF JUSTICE. WE ARE CONSCIOUS OF THE FACT THAT THE AO H AS NOT REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO DISALLOWED THE E NTIRE PURCHASES FROM SIX ALLEGED HAWALA TRADERS. THE HONBLE BOMBAY HIGH COU RT IN CASE OF CIT VS. HARIRAM BHAMBANI IN ITA NO. 313/2013 DECIDED ON 04. 12.2015 ALSO HELD THAT REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SA LE CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDE D SALE CONSIDERATION ALONE CAN BE SUBJECT TO INCOME-TAX. THUS, WE ARE OF THE C ONSIDERED VIEW THAT DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES BE REST RICTED TO 12% OF THE DISPUTED PURCHASES INSTEAD OF 8.4%. WITH THE ABOVE OBSERVATIONS THE ORDER OF THE LD CIT(A) IS MODIFIED TO THAT EXTANT. WE ORD ER ACCORDINGLY. 6. IN THE RESULT, ALL THE APPEAL FILED BY REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF JULY 2017. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) (VICE-PRESIDENT) JUDICIAL MEMBER ITA NO. 5145/M/2015- SHRI THAKARSHI LAXMIDAS JOISHER 6 MUMBAI; DATED 31 /07/2017 S.K.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/