ASSISTANT COMMISSIONER OF INCOME TAX 17(3), MUMBAI V. VIJAY N. MEHTA, MUMBAI

ITA 5216/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8857 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 10-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV GULGOTRA
• Keywords: Bogus purchase; Unexplained expenditure; Principle of natural justice; Accommodation entries
• Section: 69C; 142(1); 250

Judgement Text

1 ITA NO.5217/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI JOGINDER SINGH(VICE PRESIDENT) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO 5216/MUM/2017 (ASSESSMENT YEAR 2012-13) ACIT 17(3), MUMBAI VS SHRI VIJAY N MEHTA ROOM NO.13, 338, N.N. STREET MASJID BUNDER (W) MUMBAI 400 009 PAN : AADPM8512G APPELLANT RESPONDEDNT APPELLANT BY SHRI RAJIV GULGOTRA RESPONDENT BY NONE DATE OF HEARING 26-11-2018 DATE OF PRONOUNCEMENT 19-12-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUEIS DIRECTED AGAINS T THE ORDER OF THE CIT(A)-28, MUMBAI DATED 02-05-2011 AND IT PERTAINS TO THE ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL:- 1. ' ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE AO TO RESTRICT THE DISALLOWANCE OF BOGUS PURCHASES TO 4.27% OF UNVERIFIED PURCHASES OF RS.2, 22,79,213/-, WITHOUT APPRECIATING THE FACTS THAT - (I) IN THE ASSESSMENT ORDER, THE ASSESSEE HAS NOT PROVI DED CONFIRMATION OF PARTIES FROM WHOM PURCHASES WERE MADE, IT HAS BEEN CONCLUSIVELY ESTABLISHED THAT THE SAID PURCHASES ARE BOGUS. 2 ITA NO.5217/MUM/2017 (II) (II) WHEN THE ASSESSEE HAS MAINTAINED A CONSTANT ST AND THAT THE PURCHASE HAVE BEEN MADE FROM THE VERY PARTIES TO WHOM PAYMEN TS HAVE BEEN MADE THE APPELLATE AUTHORITIES CANNOR SUO MOTO TAKE A DIVERGENT STAND IN FAVOUR OF THE ASSESSEE, THAT THE PURCHASES HAVE BEEN FROM CERTAIN PARTIES, WHEREAS CORRESPONDING BILLS HAVE BEEN OBTA INED FROM SOME OTHER PARTIES, AS HELD BY THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. LA MEDICA, 250 ITR 575. (III) IF THE PURCHASE HAVE BEEN UNAMBIGUOUSL Y ESTABLISHED TO BE BOGUS, THE QUANTITATIVE TALLY AS REGARDS THE SALES AND CLOSING STOCK AND THE MAINTENANCE OF STOCK REGISTER CANNOT LEAD TO CONCLUSION OTHERWISE, AS ACCOUNTANCY IS ESSENTIALLY AN ART AND NOT A SCIENCE, AS HELD BY TH E HON'BLE JAIPUR ITAT IN THE CASE OF KHANDELWAL TRADING CO., AS REPORTED IN 55 T TJ 261. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PROPRIETOR OF M/S RAJVI CHEMICAL CORPORATION, ENGAGED IN THE BUSINESS OF TRADING CHEMICAL & SOLVENTS, FILED HIS RETURN OF INCOME FOR AY 2012-13 ON 29-09-2012 DECLARING TOTAL INCOME OF RS.31,75,870. THE CASE WAS SELECTE D FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT, ALONGWITH QUESTIO NNAIRE WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CAL LED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ISSUED SHOW CAUSE NO TICE AND CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY PURCHASES FROM CERTAI N PARTIES AMOUNTING TO RS.2,22,79,213 SHALL NOT BE TREATED AS UNEXPLAINED EXPENDITURE U/S 69C ON THE BASIS OF INFORMATION RECEIVED FROM MVAT WHICH STATE D THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDE D BY HAWALA DEALERS. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE, VIDE HIS L ETTER DATED 27-03-2015 SUBMITTED PURCHASE BILLS ALONG WITH PAYMENT PROOF T O ARGUE THAT PURCHASES 3 ITA NO.5217/MUM/2017 FROM THE ABOVE PARTIES ARE SUPPORTED BY VALID PURCH ASE BILLS AND ALSO PAYMENT FOR THE SAID PURCHASES HAVE BEEN MADE THROUGH PROPE R BANKING CHANNELS, BUT, THE ASSESSEE FAILED TO FILE CONFIRMATION FROM THE P ARTIES AS DESIRED BY THE AO. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESSEE AND ALSO TAKING INTO ACCOUNT REPORT OF MVAT CAME TO THE CONCLUSION THAT THE ASSESSEE FAILED TO PROVE THE PURCHASE WITH NECESSARY EVIDENCE AND ACCO RDINGLY MADE ADDITION OF RS.2,22,79,215 AS UNEXPLAINED EXPENDITURE U/S 69C O F THE INCOME-TAX ACT, 1961. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS RE ITERATED ITS SUBMISSIONS MADE BEFORE THE AO TO ARGUE THAT PURCHASES FROM THE ABOV E PARTIES WERE SUPPORTED BY PURCHASE INVOICES, DELIVERY CHALLANS AND ALSO PA YMENT FOR SAID PURCHASES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. TH E ASSESSEE FURTHER CONTENDED THAT THE AO HAS MADE ADDITION TOWARDS PUR CHASES ONLY ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY WITHOUT RE CORDING ANY REASONS AS TO HOW BOOKS OF ACCOUNT MAINTAINED FOR THE RELEVANT PE RIOD IS INCORRECT AND ALSO SALES DECLARED BY THE ASSESSEE IS NOT SUPPORTED BY CORRESPONDING PURCHASES. THE ASSESSEE ALSO TAKEN A LEGAL PLEA IN THE LIGHT O F THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTR IES VS COMMISSIONER OF CENTRAL EXCISE2015 (1) TMI 442 TO ARGUE THAT WHEN A DDITION HAS BEEN MADE ON 4 ITA NO.5217/MUM/2017 THIRD PARTY INFORMATION WITHOUT CONFRONTING THE SOU RCE OF INFORMATION TO THE ASSESSEE, VIOLATES PRINCIPLES OF NATURAL JUSTICE AN D ACCORDINGLY, NO ADDITION CAN BE MADE. 4. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLU DING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS NIKUNJ EXIM INDUSTRIES PVT LTD (2015) 372 ITR 619 (BOM) HELD THAT ALTHOUGH THE ASSESSEE I S NOT IN A POSITION TO PROVE THE PURCHASES TO THE SATISFACTION OF THE AO, BUT FA CT REMAINS THAT SAID PURCHASES ARE SUPPORTED BY CERTAIN EVIDENCES INCLUD ING PURCHASE BILLS. UNDER THESE FACTS, THE ONLY INFERENCE THAT CAN BE DRAWN I S THAT THE ASSESSEE MIGHT HAVE PURCHASED GOODS FROM GREY MARKET AND OBTAINED ACCOMMODATION BILLS FROM ENTRY PROVIDERS SO AS TO COVER UP THE PURCHASE S. IN THESE KINDS OF CASES, VARIOUS COURTS HAVE COME TO THE CONCLUSION THAT THE ENTIRE PURCHASES CANNOT BE ADDED AS INCOME OF THE ASSESSEE, BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE ADDED. THE LD.CIT(A) FURTHER OBSERVED THAT SINCE ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE CONSIDERED AS INCOME OF THE ASSESSEE TO ARRIVE AT THE PROFIT PERCENTAGE, SOME BASIS NEEDS TO BE ADOPTED. IN THIS CASE, THE ASSESSEE HAS DECLARED G ROSS PROFIT OF 3.41% TO 4.21% IN TWO EARLIER FINANCIAL YEARS. UNDER THESE FACTS, THE GROSS PROFIT DECLARED BY THE ASSESSEE HIMSELF IN EARLIER PERIOD MAY BE A GOO D YARDSTICK TO ESTIMATE 5 ITA NO.5217/MUM/2017 PROFIT ELEMENT EMBEDDED ON UNVERIFIED PURCHASES AND ACCORDINGLY DIRECTED THE AO TO ESTIMATE GROSS PROFIT OF 4.25% ON TOTAL A LLEGED BOGUS PURCHASES. 5. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. NONE APPEARED FOR THE ASSESSE BEFORE US. WE HAV E HEARD THE LD.DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO MADE ADDITIONS TOWARDS A LLEGED BOGUS PURCHASES ON THE BASIS OF REPORT OF MVAT AS PER WHICH CERTAIN PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELI VERY OF GOODS. THE SAID REPORT FURTHER STATED THAT THE ASSESSEE WAS ONE OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVIDED BY HAWALA / SUSPICIO US DEALERS. ACCORDING TO THE AO, ALTHOUGH THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCE INCLUDING PURCHASE BILLS AND PAYMENT PROOF, BUT FAILED TO FIL E FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDING FROM THE SALES-TAX DEPART MENT THAT THE PARTIES ARE HAWALA OPERATORS INVOLVED IN PROVIDING ACCOMMODATIO N ENTRIES. THEREFORE, HE CAME TO THE CONCLUSION THAT THE TOTAL PURCHASES FRO M ABOVE PARTIES WERE INGENUINE IN NATURE AND ACCORDINGLY MADE ADDITION U /S 69C OF THE INCOME-TAX ACT, 1961. IT WAS THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT PURCHASES FROM THE ABOVE PARTIES CANNOT BE CONSIDER ED AS BOGUS WHEN THE ASSESSEE HAS FILED PURCHASE BILLS, DELIVERY CHALLAN S AND ALSO PAYMENT PROOF FOR SAID PURCHASES THROUGH PROPER BANKING CHANNELS. TH E ASSESSEE FURTHER 6 ITA NO.5217/MUM/2017 CONTENDED THAT IN ABSENCE OF ANY FINDING AS TO INCO RRECTNESS IN BOOKS OF ACCOUNT FOR THE RELEVANT PERIOD, THE AO WAS INCORRE CT IN TREATING PURCHASES AS BOGUS MERELY ON THE BASIS OF REPORT OF THIRD PARTIE S, THAT TOO, WITHOUT PROVIDING AN OPPORTUNITY TO CROSS EXAMINE THE PARTI ES AND ALSO THE EVIDENCE USED AGAINST THE ASSESSEE TO MAKE ADDITION. 7. HAVING CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE FAILED TO PROVE THE PURCHASES FROM THE SO- CALLED HAWALA / SUSPICIOUS DEALERS WITH NECESSARY EVIDENCES, ALTHOUGH HE HAD F URNISHED PURCHASE BILLS AND PAYMENT PROOF. MERE FURNISHING OF PURCHASE BILLS A ND PAYMENT PROOF WOULD NOT BE SUFFICIENT ENOUGH TO DISCHARGE THE ONUS CAST UPON THE ASSESSEE, WHEN THE CIRCUMSTANTIAL EVIDENCE CLEARLY SHOWS THAT THE PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES AND THIS FACT WAS F URTHER SUPPORTED BY THE STATEMENT OF PARTIES BEFORE THE SALES-TAX AUTHORITI ES. AT THE SAME TIME, THOUGH THE AO HAS RELIED UPON THE STATEMENT OF MVAT DEPARTMENT TO COME TO THE CONCLUSION THAT THE PURCHASES FROM CERTAIN PART IES ARE BOGUS IN NATURE, FAILED TO CARRY OUT FURTHER ENQUIRIES BY ISSUING NO TICES TO THE PARTIES AT THE GIVEN ADDRESSES TO ASCERTAIN WHETHER THE PARTIES AR E EXISTING AND ALSO THEY WERE CARRYING OUT ANY BUSINESS ACTIVITIES. UNDER T HESE FACTS AND CIRCUMSTANCES, THE ONLY INFERENCE THAT CAN BE DRAW IS NEITHER THE ASSESSEE PROVED THE PURCHASES NOR THE AO HAS CARRIED OUT NEC ESSARY ENQUIRIES TO DRAW 7 ITA NO.5217/MUM/2017 AN ADVERSE INFERENCE AGAINST THE ASSESSEE. IN THES E CIRCUMSTANCES, VARIOUS COURTS AND TRIBUNALS HAVE TAKEN A CONSISTENT VIEW I N A NUMBER OF CASES THAT IN CASE OF BOGUS PURCHASES OR WHERE PURCHASES HAVE NOT BEEN PROVED TO THE SATISFACTION OF THE AO, ONLY PROFIT ELEMENT EMBEDDE D IN SUCH PURCHASES NEEDS TO BE CONSIDERED AS INCOME OF THE ASSESSEE, BUT NOT TOTAL ALLEGED BOGUS PURCHASES. THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF VIJAY PROTEINS LTD VS CIT (2015) 58 TAXMAN.COM.44(GUJ) HELD THAT IN CASE OF BOGUS PURCHASES, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES HAS TO BE CONSIDERED AS INCOME OF THE ASSESSEE. THE HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS SIMIT P SHETH (2013) 356 ITR 451 (GUJ) HAS TAKEN A SIMILAR VIEW AND HELD THAT ONLY PROFIT ELEMENT EMBEDDED ON ALLEGED BOGUS PURCHASES NEEDS TO BE CONSIDERED AS INCOME OF THE ASSESSEE. THE CO-ORDINATE BENCH O F ITAT, MUMBAI BENCHES IN A NUMBER OF CASES HAS TAKEN A CONSISTENT VIEW AND E STIMATED PROFIT OF 12.5% TO 15% DEPENDING UPON FACTS OF EACH CASE. IN THIS CAS E, THE ASSESSEE IS INVOLVED IN THE BUSINESS OF TRADING IN CHEMICALS AND SOLVENT S. THE FACTS GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS PROVE THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVIDED BY SUSPICIOUS / HAWALA DEALERS. ALTHOUGH THE LD.CIT(A) HAS ACCEPTED THE F ACT THAT THE ASSESSEE HAS NOT PROVED THE PURCHASES TO THE SATISFACTION OF THE AO, WHILE ESTIMATING NET PROFIT ON SUCH PURCHASES, GROSS PROFIT DECLARED BY THE ASSESSEE IN ITS BOOKS OF 8 ITA NO.5217/MUM/2017 ACCOUNT FOR EARLIER PERIOD HAS BEEN TAKEN AS BASIS FOR ESTIMATION OF NET PROFIT ON ALLEGED BOGUS PURCHASES. WHEN THE ASSESSEE IS I N THE HABIT OF TAKING OR OBTAINING ACCOMMODATION ENTRIES IN ORDER TO INFLATE ITS PURCHASES, GROSS PROFIT DECLARED BY THE ASSESSEE FOR EARLIER PERIOD COULD N OT BE CONSIDERED AS BASIS FOR ESTIMATION OF PROFIT ELEMENT EMBEDDED IN BOGUS PURC HASES. THE CO-ORDINATE BENCH IN VARIOUS CASES HAS DIRECTED THE AO TO ESTIM ATE NET PROFIT OF 12.5% ON ALLEGED BOGUS PURCHASES. THEREFORE, CONSISTENT WIT H THE VIEW TAKEN BY THE CO- ORDINATE BENCH IN NUMBER OF CASES, WE DEEM IT APPRO PRIATE TO ESTIMATE NET PROFIT OF 12.5% ON ALLEGED BOGUS PURCHASES. ACCORD INGLY, THE AO IS DIRECTED TO ESTIMATE NET PROFIT OF 12.5% ON THE ALLEGED BOGUS P URCHASES. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-12-2018 . SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT : 19 TH DECEMBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI