ASST CIT 25(2), MUMBAI V. MAHIPL M JAIN, MUMBAI

ITA 5290/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0645 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V C SHAH
• Keywords: Bogus purchase; Unexplained expenditure
• Section: 69C; 143(3); 133(6); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, MU MBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5144/MUM/2013 (ASSESSMENT YEAR- 2010-11) MAHIPAL BABULAL JAIN A/45, ASHIYANA TOWER, SODAWALA L ANE, BORIVALI (W), MUMBAI-400092 PAN: ABOPJ6794M VS. ACIT-25(2), PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI-400051 (APPELLANT) (RESPONDENT) ITA NO.5290/MUM/2013 (ASSESSMENT YEAR- 2010-11) ACIT-25(2), PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, MUMBAI-400051 VS. MAHIPAL BABULAL JAIN A/45, ASHIYANA TOWER, SODAWALA LANE, BORIVALI (W), MUMBAI-400092 PAN: ABOPJ6794M ASSESSEE BY : SHRI V. C. SHAH REVENUE BY : SHRI KAILASH KANOJIYA (DR) DATE OF HEARING : 02.05.2017 DATE OF PRONOUNCEMENT : 17.05.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE CROSS APPEAL UNDER SECTION 253 OF INCOME TAX ACT, ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS) -35 MUMBAI, DAT ED 20 TH MAY 2013 FOR ASSESSMENT YEAR 2010-11. IN BOTH THE APPEALS, THE F ACTS ARE COMMON, GROUNDS OF APPEALS ARE CONNECTED THUS, BOTH THE APPEALS WER E HEARD TOGETHER AND ARE BEING DECIDED BY THE COMMON ORDER TO AVOID THE CONF LICTING DECISION. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN IND IVIDUAL AND ENGAGED IN THE BUSINESS OF CIVIL CONTRACTOR, SUB-CONTRACTOR FOR CI VIL AND FOR LABOUR CONTRACT AND SUB-CONTRACT. THE ASSESSEE IS PROPRIETOR OF M/ S MOKSHA CONSTRUCTION. THE ITA NO.5144 & 5290 /M/2013- MAHIPAL BABULAL JAIN 2 ASSESSEE FILED HIS RETURN OF INCOME FOR RELEVANT AS SESSMENT YEAR ON 20 TH SEPTEMBER 2010 DECLARING TOTAL INCOME OF RS.26,20,3 26/-. THE ASSESSMENT WAS COMPLETED ON 8 TH MARCH 2013 UNDER SECTION 143(3) OF THE ACT. THE AS SESSING OFFICER WHILE FRAMING THE ASSESSMENT ORDER MADE THE ADDITIONS OF RS. RS.2,21,63,862/- UNDER SECTION 69C ON ACCOUNT OF BO GUS EXPENDITURE. THE ASSESSING OFFICER MADE THE ADDITION UNDER SECTION 6 9C OF THE ACT. ON APPEAL BEFORE COMMISSIONER (APPEALS) THE DISALLOWANCE WAS RESTRICTED TO RS. 41,32,070/-, THEREBY DELETING THE BALANCE OF RS. 1, 80,31,792/-. THEREAFTER, AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) BO TH THE PARTIES HAVE FILED THEIR CROSS APPEALS. THE ASSESSEE HAS CHALLENGED TH E ORDER OF COMMISSIONER (APPEALS) AGAINST SUSTAINING THE ADDITION OF RS.41, 32,070/-, SIMILARLY THE REVENUE HAS CHALLENGED THE DELETION OF RS. 1,80,31, 792 /-. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION TO TOTAL INCOME OF RS.41 ,32,070/- BY ILLOGICALLY COMING TO THE CONCLUSION THAT THE GROSS PROFIT EARN ED BY YOUR APPELLANT WAS LOWER THAN THE SAME IN PRECEDING YEARS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN REJECTING THE BOOK RESULTS MERELY BY COMIN G TO THE CONCLUSION THAT THE GROSS PROFIT EARNED WAS LESS COMPARED TO EARLIER YE ARS FOR WHICH YOUR APPELLANT COULD HAVE FURNISHED THE EXPLANATION AND BOOK RESUL TS WERE REJECTED MERELY ON CONJECTURES AND SURMISES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT (A) ERRED IN NOT CONSIDERING THE FACT THAT ABOUT 67% OF YOUR APP ELLANTS TURNOVER IN THIS YEAR WAS FROM SUB-CONTRACTS ACCEPTED AS COMPARED TO 8% IN PR ECEDING YEAR AND NIL IN A.Y.2008-09 AND THE MARGIN OF PROFIT IN SUB-CONTRAC T RECEIPTS IS ALWAYS SUBSTANTIALLY LESS AS COMPARED TO THE WORK CONTRACT OR. 4. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: (1) THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF R S. 2,21,63,862/- WHICH WAS MADE BY INVOKING THE PROVISION OF SECTION 69C OF TH E I.T. ACT BY TREATING THE PURCHASES AS GENUINE. (2) THE LD. CIT(A) ERRED IN RELYING UPON THE JUDGMENTS OF CIT VS NIKUNJ EXIMP PVT LTD. WITHOUT APPRECIATING THAT THE FACTS INVOLVED I N THE APPELLANTS CASE ARE DIFFERENT FROM THE FACTS OF THE ABOVE CASE LAWS. (3) THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATIN G THE FACTS THAT NOTICE UNDER SECTION 133(6) ISSUED TO THE PARTIES FROM WHHOME UN LESS BILLS WERE RECEIVED WERE RETURNED UNDELIVERED BY THE POSTAL AUTHORITIES AND INSPECTOR OF THE CIRCLE. (4) THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATIN G THE FACT THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE PARTIES, FROM WHOM ALLEGED BILL S WERE RECEIVED BEFORE THE AO DESPITE MANY OPPORTUNITIES WERE ACCORDED TO HIM. (5) THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATIN G THE FACT THAT ASSESSEE FAILED TO REBUT THE FINDINGS OF SALES TAX DEPARTMENT VIS--VI S BOGUS PURCHASES DESPITE ITA NO.5144 & 5290 /M/2013- MAHIPAL BABULAL JAIN 3 REASONABLE OPPORTUNITY WAS ACCORDED AND THE ASSESSE E ASKED TO ALLOW CROSS EXAMINATION OF THE ALLEGED SELLER BEFORE THE A.O. (6) THE LD. CIT(A) HAS GROSSLY ERRED IN ACCEPTING THE M ISLEADING SUBMISSION MADE BY ASSESSEE THAT THE DEPARTMENT DIDNT MAKE AVAILABLE THE INFORMATION PROVIDED BY SALES TAX DEPARTMENT. (7) THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AN D THAT OF THE AO BE RESTORED. 5. WE HAVE HEARD THE LD. AR OF THE ASSESSEE AND THE LD . DR FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE N OTICED THAT BOTH THE PARTIES HAVE RAISED A NUMBER OF ISSUES. HOWEVER, AS PER OUR CONSIDERED OPINION THE SOLE GROUND OF APPEAL IN BOTH THE CROSS APPEALS ARE WHETHER THE COMMISSIONER (APPEALS) ERRED IN SUSTAINING THE PARTIAL DISALLOWA NCE. THE LEARNED AR FOR THE ASSESSEE ARGUED THAT THE LOWER AUTHORITY HAS NOT CO NSIDERED THE FACT PROPERLY AND THE ADDITION WAS MADE WITHOUT APPRECIATING THE FACTS AND SUBMISSIONS MADE BEFORE THEM. THE ASSESSING OFFICER MERELY RELI ED UPON THE INFORMATION OF SALE TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA WITHOUT MAKING ANY INDEPENDENT ENQUIRY. THE NAMES OF THE DEALER/SUSPIC IOUS DEALER WHICH WAS APPEARED ON WEBSITE OF SALE TAX DEPARTMENT OF GOVER NMENT OF MAHARASHTRA WAS SUSPICIOUS AS THEY HAVE NOT DISCLOSED CERTAIN T RANSACTION OR MAY NOT HAVE DISCHARGED THEIR VAT LIABILITY. THE ASSESSING OFFIC ER AND LD. COMMISSIONER (APPEALS) HAVE NOT APPRECIATED THE FACT THAT THE AS SESSEE WAS A SUB-CONTRACTOR. THE LD. COMMISSIONER (APPEALS) MADE THE ADDITIONS O N THE BASIS OF AVERAGE GROSS PROFIT RATIO FOR AY 2008-09 & 2009-10, WITHOU T GIVING OPPORTUNITY TO EXPLAIN THE FACTS BY ASSESSEE. ON THE OTHER HAND, T HE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. THE LD. D R FOR THE REVENUE FURTHER ARGUED THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE GENUINITY OF EXPENDITURE. NO DELIVERY CHALLAN, LORRY RECEIPT AND MODE OF TRANSPO RTATION OF GOODS WERE FILED BEFORE THE ASSESSING OFFICER. THE NOTICES SENT BY T HE ASSESSING OFFICER TO THOSE PARTIES WERE NOT SERVED, THE POSTAL AUTHORITI ES GAVE THEIR REPORT EITHER LEFT OR NOT AVAILABLE AT THE ADDRESSES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFI CER WHILE FRAMING ASSESSMENT ORDER ASKED THE ASSESSEE TO FURNISH THE LIST OF PERSON FROM THE ASSESSEE PURCHASED THE MATERIAL. THE ASSESSEE FURNI SHED THE LIST OF SUCH PARTIES. ITA NO.5144 & 5290 /M/2013- MAHIPAL BABULAL JAIN 4 THE ASSESSING OFFICER NOTICED THAT OUT OF SUCH PART IES, THE NAME OF SOME OF SUCH PARTIES IS APPEARING IN THE LIST OF SUSPICION DEALERS ON WEBSITE OF MAHARASHTRA GOVERNMENT SALES TAX DEPARTMENT. THOSE DEALERS WERE ISSUING BOGUS BILLS WITHOUT DELIVERY OF ANY GOODS OR MATERI AL. THE PARTIES WERE ISSUING ONLY BILLS FOR A COMMISSION. THE ASSESSING OFFICER COLLECTED THE STATEMENT OF THE PARTIES WHOSE NAMES APPEARED IN THE LIST MAHARA SHTRA GOVERNMENT SALES TAX DEPARTMENT. COPIES OF ALL THE INFORMATION, STAT EMENT, AND DEPOSITION, AFFIDAVIT ETC. WERE PROVIDED TO THE ASSESSEE. THE A SSESSING OFFICER ALSO ISSUED NOTICE UNDER SECTION 133(6) OF THE ACT TO ALL SUCH PARTIES. THE NOTICES SENT TO THOSE PARTIES WERE RETURN BACK BY THE POSTAL AUTHOR ITIES WITH THE REMARK BOTH LEFT OR NOT KNOWN AND ONE OF SUCH PARTIES NAMEL Y M/S. YASH CORPORATION WAS NOT AVAILABLE AT ITS ADDRESS, WHEN THE INSPECTO R DEPUTED TO SERVE THE NOTICE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PURCHASES OF AGGREGATING OF RS.2,21,63,862/- SHOULD NOT BE TREAT ED AS UNEXPLAINED EXPENDITURE. THE ASSESSEE FILED HIS REPLY ON 2 ND MARCH 2013 AND CLAIMED THAT PURCHASES MADE FROM THESE PARTIES ARE GENUINE. THE ASSESSEE IN HIS REPLY FURTHER CONTENDED THAT THE ASSESSEE USED TO PURCHAS E MATERIAL LIKE SAND, CEMENT AS THE SAME EASILY AVAILABLE IN THE MARKET, THE ASSESSEE USED TO PLACE THE ORDER VERBALLY BASED ON THE REQUIREMENT ON SITE . ALL THE SITES WERE UNDER THE CONTROL OF SUPERVISOR AND PROPRIETOR, THERE WAS NO POSSIBILITY OF ANY LEAKAGE IN USE OF MATERIAL, ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUE AND COPIES OF BANK STATEMENT ALONG WITH COPIES OF CHEQU ES NUMBER WERE PROVIDED TO THE ASSESSING OFFICER. THE CONTENTION OF ASSESSE E WAS NOT ACCEPTED BY ASSESSING OFFICER AND THE ASSESSING OFFICER DISALLO WED THE AGGREGATE OF ENTIRE PURCHASES OF RS.2,21,63,862/- HOLDING THAT THE ASSE SSEE FAILED TO PRODUCE THE DELIVERY CHALLANS, PAYMENTS OF OCTROI RECEIPT, STOC K REGISTER TO SUBSTANTIATE THE GENUINITY OF THE PURCHASES FROM THESE PARTIES. THE ASSESSEE FAILED TO PRODUCE THE EVIDENCE AS TO HOW THE MATERIAL COMES TO THE PO SSESSION OF THE ASSESSEE AND THUS THE ASSESSING OFFICER DISALLOWED THE COST OF E NTIRE EXPENDITURE INCURRED ON ACCOUNT OF PURCHASES. THE LD. COMMISSIONER (APPEALS ) THOROUGHLY EXAMINED THE FACTS OF THE CASE AND THE SUBMISSION MADE BEFOR E HIM. THE LD. ITA NO.5144 & 5290 /M/2013- MAHIPAL BABULAL JAIN 5 COMMISSIONER (APPEALS) ALSO REFERRED A NUMBER OF DE CISIONS OF CO-ORDINATE BENCH, DIFFERENT HIGH COURTS AND HONBLE APEX COURT . THE LD. COMMISSIONER (APPEALS) EXAMINED THE GROSS PROFIT RATIO, WHEREIN THE G.P. RATIO IN AY 2008- 09 IS 13.71% AND G.P. RATIO IN AY 2009-10 IS 13.03% . THE G.P. RATIO IN THE YEAR UNDER CONSIDERATION WAS RECORDED AS FALLEN TO 7.88%. THE LD. COMMISSIONER (APPEALS) CONCLUDED THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE AS TO WHY THE G.P. RATIO HAS NOT FALLE N DOWN TO 7.88%, WHICH WAS OVERALL MORE THAN 13% IN PAST EXCEPT AY 2006-07 & 2 007-08, WHERE THE G.P. WAS ABOVE 17%. ON THE BASIS OF AVERAGE G.P. RATIO F OR AY 2008-09 & 2009- 10, THE LD. COMMISSIONER (APPEALS) ARRIVED AT AVERA GE G.P. OF 13.37% FOR THE YEAR UNDER CONSIDERATION. BY APPLYING THE G.P. RAT IO ON GROSS RECEIPT OF RS.7,53,23,888/-, THE GROSS PROFIT OF RS. 1,00,70, 803/- WAS WORKED OUT. THE LD. COMMISSIONER (APPEALS) FURTHER OBSERVED THAT TH E ASSESSEE HAS ALREADY DECLARED RS. 59,38,733/- AS GROSS PROFIT FOR THE YE AR. THE LEARNED COMMISSIONER (APPEALS) REDUCED THE AMOUNT OF GROSS PROFIT FROM THE PROFIT WORKED OUT BY HIM. (RS. 1,00,70,803 - RS. 59,38,733 = RS. 4132070). THUS, THE LD. COMMISSIONER (APPEALS) SUSTAINED THE DISALLOWAN CE OF RS. 41,32,070/-. WE HAVE NOTICED THAT THE DISALLOWANCE SUSTAINED BY LD. COMMISSIONER (APPEALS) IS 18.64% (19% APPROX ) OF THE IMPUGNED PURCHASES/EXPE NDITURE. WE HAVE FURTHER SEEN THAT THE LD. COMMISSIONER (APPEALS) HA S NOT GIVEN OPPORTUNITY TO THE ASSESSEE WHILE WORKING OUT THE DISALLOWANCE ON THE BASIS OF G.P. RATIO. WE HAVE NOTICED THAT THE AO NOR THE LD. CIT(A) REJECTE D THE SALES OF THE ASSESSEE. THE AO DISALLOWED THE ENTIRE AMOUNT OF PURCHASES/ E XPENDITURE. WE ARE OF THE CONSIDERED OPINION THAT UNDER INCOME TAX ACT ONLY R EAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER NOTE THAT EVEN IN C ASES WHERE THE WHOLE TRANSACTION IS NOT VERIFIABLE DUE TO VARIOUS REASON S, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSAC TION. THE SIMILAR VIEW WAS TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HARIRAM BHAMBANI IN ITA NO.313 OF 2013 DECIDED ON 04.02.15 . THE HONBLE HIGH COURT FURTHER HELD ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALE CONSIDERATION ALONE CAN BE SUBJECT TO INCOME TAX. W E HAVE FURTHER NOTICED THAT ITA NO.5144 & 5290 /M/2013- MAHIPAL BABULAL JAIN 6 THE AO NOT EXAMINED THE GROSS PROFIT RATIO OR NET P ROFIT RATIO OF ASSESSEE FOR PREVIOUS YEAR AND IN SUBSEQUENT YEARS. AFTER CONSID ERING THE FACTS AND RIVAL CONTENTIONS OF THE PARTIES, WE ARE OF THE OPINION T HAT IN ORDER TO FULFILL THE GAP OF REVENUE LEAKAGE THE DISALLOWANCE OF REASONABLE P ERCENTAGE OF IMPUGNED PURCHASE WOULD MEET THE END OF JUSTICE. THUS, WE AR E OF THE OPINION THAT DISALLOWANCE MADE ON ACCOUNT OF BOGUS PURCHASES BE RESTRICTED TO 10% OF THE IMPUGNED/ DISPUTED PURCHASES. THUS, THE AO IS DIRE CTED TO RESTRICT THE DISALLOWANCE TO 10% OF THE TOTAL IMPUGNED PURCHASES . WITH THESE OBSERVATIONS, BOTH THE CROSS APPEALS ARE DISPOSED OFF. 7. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTLY A LLOWED AND APPEAL FILED BY REVENUE IS RESULTANTLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF MAY 2017. SD/- SD/- (SHAMIM YAHYA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 17/05/2017 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/