MR.VISHWANATH KANTIPRASAD CHAUDHARY, MUMBAI V. INCOME TAX OFFICER 17(3)(5), MUMBAI

ITA 5192/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1739 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 07-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Assessee Lawyers: PARAG POTFODE ADVAR
• Keywords: Bogus purchase; Reassessment proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO.5192/MUM/2018 ( ASSESSMENT YEAR: 2010-11) VISHWANATH KANTIPRASAD CHAUDHARY, B-96, 1 ST FLOOR,MANGALDAS MARKET, BLDG. NO. 2, 9, MANGALDAS ROAD, GOPAL GALI, MUMBAI-400021 VS. I.T.O., WARD 17(3)(5), MUMBAI. PAN/GIR NO.ACGPC 5982 R (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI PARAG POTFODE (ADV-AR) REVENUE BY SHRI AKHTAR H ANSARI (SR.DR) DATE OF HEARING 07/11/2019 DATE OF PRONOUNCEMENT 09/12/2019 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 05/06/2018 OF LD. CIT(A)-28, MUMBAI FOR THE A.Y. 20 11-12 IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: 1. CIT(A) IS FAILED TO APPRECIATE CHANGE OF NATURE OF BUSINESS OF ASSESSEE FROM RETAILERS TO WHOLESALE WHILE ESTIMATING GROSS PROFIT PERCENTAGE AND TO DELETE THE ADDITION OF RS. 7,45,685/- DONE B Y ITO. 2. CIT(A) HAD PASSED THE ORDER ON ASSUMPTION OF TRA NSACTION AND FAILS TO UNDERSTAND THE FACTS. 3. CIT(A) IS FAILED TO APPRECIATE THAT THE ASSESSEE S TAXABLE INCOME WAS INCREASE DOUBLE THAN EARLIER YEARS. IT SHOWS THAT T HE ASSESSEE HAD NOT SUPPRESSED THE PROFIT BUT BEING BULK ORDER TAKEN ON LOW PROFIT MARGIN. ITA NO. 5192/MUM/2018 VISHWANATH KANTIPRASAD CHAUDHARY VS ITO 2 4. THE ASSESSEE HAD ALREADY SHOWN GP OF 7% OF TRADI NG, PROFIT AND LOSS ACCOUNT, WHICH INCLUDES PURCHASE OF RS. 59,65,485/- ON WHICH ITO HAD CALCULATED 12.5%. IT MEANS ITO HAD CALCULATED PROFI T @ 19.5% (I.E. 12.5% + 7%). IT SHOWS THAT THE ITO HAD CALCULATED I N WRONG WAY AND CIT(A) FAILS TO CORRECT IT. 5. WE REQUEST YOUR KINDNESS TO ALLOW TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSMENT WAS REOPENED ON THE INFOR MATION FROM THE SALES TAX DEPARTMENT REGARDING ASSESSEE AVAILING BO GUS BILL. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE WA S ASKED TO FURNISH THE SPECIFIC DETAILS OF BOGUS PURCHASES. IT IS ALSO CONVEYED THAT SALE TAX DEPARTMENT, MUMBAI HAS DETECTED HAWALA DEALERS INDU LGING ONLY IN ISSUING BOGUS SALES BILLS AND FOLLOWING PARTIES WHO HAS ISSUED BOGUS SALES BILLS TO THE TUNE OF RS. 59,65,485/- TO THE ASSESSE E. SR. NO. HAWALA NAME PAN AMOUNT (IN RS.) 1 CHIRAG STEEL CENTRE AABPV2786M 16,02,762/- 2. CHAMPION STEEL (INDIA) AAAPV5546Q 20,55,975/- 3. SHUBHAM METAL CORPORATION AACPJ2016P 22,72,306/- 4. BHAGYALAXMI STEEL INDUSTRIES AHNPJ5891L 34,442/- TOTAL 59,65,485/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE'S REPRESENTATIVE WAS ASKED TO PRODUCE THE PURCHASE PA RTY AND ALSO TO PRODUCE THE BILLS, DELIVERY CHALLANS, AND PAYMENT D ETAILS ETC. FOR VERIFICATION AND TO CONFIRM THE PURCHASES. THE ASSE SSEE STATED HIS INABILITY TO PRODUCE THE PARTY FOR CONFIRMATION OF THE PURCHASES. NOT ITA NO. 5192/MUM/2018 VISHWANATH KANTIPRASAD CHAUDHARY VS ITO 3 SATISFIED WITH THE ASSESSEES CONTENTION, THE A.O. MADE ADDITION @ 12.5% BY ESTIMATING THE G.P. ON SUCH BOGUS PURCHASES. 3. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O., AGAINST WHICH, THE ASSESSEE IS IN FURTHER APP EAL BEFORE THE ITAT. 4. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WITH RESPECT T O ISSUE REGARDING ADDITION IN RESPECT OF BOGUS PURCHASES, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI AD AM & CO. IN ITA NO. 1004 OF 2016 VIDE ITS ORDER DATED 11/02/2019 H AVE HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUE STION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIR E PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOM E OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT T HE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSE SSEE AND THE SALES DECLARED. THAT BEING THE POSITION, TH E TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHA SES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICT ED THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF TH E GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD.. (SUPRA) CANNOT BE APPLIED WITHOUT ITA NO. 5192/MUM/2018 VISHWANATH KANTIPRASAD CHAUDHARY VS ITO 4 REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF T HE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY TH E ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD AD MITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURIN FINANCIAL YEAR 1997- 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESS EE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REV ENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO A CCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDU CE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROF IT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/WHI CH COMES TO RS.2098.62 1.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98.621.88 AS G ROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSW ERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR O F THE REVENUE.' 5. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 AFTER FOLLOWING THE ABOVE DECISION OF HO NBLE BOMBAY HIGH COURT HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIR MED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SMITH P.SETH (SUPRA). WE HAVE CONSIDERE D THE RIVAL CONTENTIONS ITA NO. 4192/MUM/2018 AND ARE OF THE VI EW THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPRA) HAS CONSIDERED THIS ISSUE AND RESPECTF ULLY FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT OF DIFFERENTIAL PERCENTAGE AS DECLARED ON THE BOGUS PU RCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO A CCORDINGLY. 6. IT IS CLEAR FROM THE ABOVE DECISIONS THAT IN CAS E OF BOGUS PURCHASES WHERE SALES ARE ACCEPTED, THE ADDITION IS REQUIRED TO BE MADE ITA NO. 5192/MUM/2018 VISHWANATH KANTIPRASAD CHAUDHARY VS ITO 5 ONLY TO THE EXTENT OF DIFFERENCE BETWEEN THE GP DEC LARED BY THE ASSESSEE ON NORMAL PURCHASES VIS A VIS BOGUS PURCHA SES. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE JURISDICTIONAL H IGH COURT AND THE COORDINATE BENCH OF THE ITAT, MUMBAI, I DIRECT THE A.O. TO RESTRICT THE ADDITION TO THE EXTENT OF LOWER GP DECLARED BY THE ASSESSEE IN RESPECT OF BOGUS PURCHASES AS COMPARED TO GP ON NORMAL PURCHAS ES. THE ASSESSEE IS ALSO DIRECTED TO GIVE FULL DETAILS TO THE A.O. W ITH REGARD TO GP EARNED ON NORMAL PURCHASES AND ALSO GP EARNED ON ALLEGED B OGUS PURCHASES. I DIRECT ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH DECEMBER, 2019. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 09/12/2019 *RANJAN 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//