INCOME TAX OFFICER WARD-3(3), KALYAN V. SHRI KANTILAL M JAIN, MUMBAI

ITA 5307/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9619 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 14-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI
• Keywords: Bogus purchase
• Section: 143(1); 201; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC , MUMBAI BEFORE S HRI G. MANJUNATHA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5307 /MUM/2018 ASSESSMENT Y EAR: 2009 - 2010 ITA NO. 5308 /MUM/2018 ASSESSMENT Y EAR: 2010 - 2011 & ITA NO. 5309 /MUM/2018 ASSESSM ENT Y EAR: 2011 - 2012 THE INCOME TAX OFFICER - WAD3(3), 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN (W) - 421301 VS. SHRI KANTILAL M JAIN, 1, GROUND FLOOR, BUILDING 25, GANESH KRUPA, P DINKAR ROAD, DOMBIVALI PAN: AATPJ1458J (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R. BHOOPATHI ( DR ) ASSESSEE BY : SHRI N.A. KULKARNI (A R ) DATE OF HEARING: 01/10 /201 9 DATE OF PRONOUNCEMENT: 11 / 10 /201 9 O R D E R PER RAM LAL NEGI, JM THESE APPEAL S HAV E BEEN FILED BY THE REVENUE AGAINST THE CAPTIONED ORDER S DATED 29.06.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 3 (FOR SHORT THE CIT(A) , NASIK , FOR THE ASSESSMENT YEAR S 2009 - 10, 2010 - 11 AND 2011 - 12 , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED T HE APPEAL S FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER S PASSED U/S 143 (3) R.W.S 147 OF THE INCOME TAX AC T, 1961 (FOR SHORT THE ACT). SINCE, THE SAID APPEALS PERTAIN TO THE SAME ASSESSEE, THESE WERE CLUBBED, HEARD TOGETHER AND ARE BEING DISPOSED O F BY THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 IT A NO. 5307/MUM/2018 (ASSESSMENT YEAR: 2009 - 2010 ) THE FACTS OF THE SE CASE S ARE SIMILAR AND THE ISSUES INVOLVED IN ALL THE THREE APPEALS ARE ALSO IDENTICAL. HENCE WE TAKE THE FACTS OF THE CASE PERTAINING TO THE ASSESSMENT YEAR 2009 - 10 AS LEAD CASE. T HE ASSESSEE PROPRIETOR OF M/S LE LAMINATES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS. 60,350/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. 2. SUBSEQUENTLY, THE AO RECEIVED INFORMATION FROM SALES TAX DEPARTMENT, MAHARASHTRA, THAT THE ASSESSEE DURING THE PREVIOUS YEAR HAD OBTAINED BOGUS BILLS FROM TWO HAWALA DEALERS AMOUNTING TO RS. 4,19,781 / - , WITHOUT ACTUAL PURCHASING GOODS /MATER IAL . ON THE BASIS OF THE SAID INFORMATION, THE AO REOPENED THE ASSESSMENT AFTER RECORDING REASONS FOR REOPENING AND ISSUED NOTICE U/S 148 OF THE ACT TO THE ASSESSEE. ACCORDINGLY, THE AO ISSUED NOTICE U/S 142 (1) AND 143 (2) OF THE ACT. IN RESPONSE TO THE S AID NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND FURNISHED THE DETAILS CALLED FOR. SINCE IT WAS NOTICED THAT T HE ASSESSEE HAD SHOWN PURCHASES FROM HAWALA PARTIES NAMELY , VINAY TRADING COMPANY AMOUNTING TO RS. 4,02,479/ - AND M/S UTKANTHA TRADING PVT. LTD. AMOUNTING TO RS. 17,302/ - , AO ASKED THE AR TO SUBMIT THE COPIES OF BILLS, TRANSPORTATION AND OCTROI RECEIPTS IN RESPECT OF TRANSACTION MADE WITH THE SAID PARTIES. IN RESPONSE THEREOF THE AR ONLY SUBMITTED PHOTOCOPIES OF P URCHASE BILLS AND SOME OTHER DETAILS. THE AO ISSUED NOTICE U/S 133 (6) TO THE SAID PARTIES, HOWEVER, THE NOTICES WERE RECEIVED BACK UN - SERVED. THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTIES BEFORE THE AO, BUT PLEADED THAT THE PURCHASES WERE GENUINELY MADE FROM THE SAID PARTIES. THE AO REJECTING THE CONTENTION OF THE ASSESSEE TREATED THE PURCHASES AS BOGUS TRANSACTION AND ADDED THE SAID AMOUNT S TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE CIT(A). THE LD. CIT(A) AFTE R HEARING THE ASSESSEE RESTRICTED THE ADDITION TO 12.5% . AGAINST THE SAID ORDER, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 3 . THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUNDS : - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS JUSTIFIED IN NOT APPRECIATING THE LAW CORRECTLY THAT ONCE THE PURCHASES ARE UNVERIFIABLE/NOT GENUINE/BOGUS, THE SAME SHOULD HAVE BEEN DISALLOWED IN ENTIRET Y? 2. WHETHER ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN LAW BY NOT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE PURCHASES FROM THE NON - EXISTENT VENDORS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN LAW BY NOT APPRECIATING THE FACT THAT THE ONUS TO JUSTIFY THE CLAIM OF EXPENSES IS ON THE ASSESSEE AND THE SAME HAS FAILED TO DISCHARGE IT IN RELATION TO THE PURCHASES MADE FROM THE NON - EXI STENT VENDORS? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN LAW BY IGNORING, THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF PURCHASES FROM NON - EXISTENT VENDORS BY MEANS OF RELEVANT SU PPORTING DOCUMENTS RELATED TO MOVEMENT AND DELIVERY OF GOODS, STOCK REGISTER, ETC. TO ARRIVE AT DISALLOWANCE AT 12.5% OF THE PURCHASES FROM THE NON - EXISTENT VENDORS? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) W AS JUSTIFIED IN NOT APPRECIATING THE LAW CORRECTLY THAT ONCE THE PURCHASES ARE UNVERIFIABLE/NOT GENUINE/BOGUS, THE SAME SHOULD HAVE BEEN DISALLOWED IN ENTIRELY, PARTICULARLY IN VIEW OF THE RATIO OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN TAX APPE AL NO. 242 OF 2003 DATED 20/06/2016 IN THE CASE OF N.K. PROTEINS LTD. AGAINST WHICH THE SLP WAS DISMISSED BY THE HONBLE APEX COURT? 4. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE FINDINGS OF THE AO SUBMITTED THAT SINCE THE ASSESSE E HAS FAILED TO DISCHARGE THE PRIMARY ONUS OF PROVING GENUINENESS OF THE TRANSACTION OF PURCHASE, THE LD. 4 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 CIT (A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AO IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF N.K. PROTEINS LTD , TAX APPEAL NO. 242 OF 2003 DATED 20/06/2016. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF THE LD. CIT(A) SUBMITTED THAT SINCE THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS OF ESTABLISHING GENUINENESS OF THE PURCHASES BY SUBMITTING TH E DOCUMENTARY EVIDENCE, THE AO HAS WRONGLY MADE 100% ADDITION OF THE ALLEGED BOGUS PURCHASES. PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD , THE LD. CO UNSEL SUBMITTED THAT MERELY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE PARTIES BEFORE THE AUTHORITIES BELOW, IT COULD NOT BE CONCLUDED THAT THE GOODS WERE NOT PURCHASED. THE LD. COUNSEL FURTHER SUBMITTED THAT IN ANY CASE THE LD. CIT (A)HAS RIGHTLY RESTRICT ED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF THE ALLEGED BOGUS PURCHASES AND THERE IS NO MERIT IN THE REVENUES APPEAL. 5. WE HAVE CAREFULLY GONE THROUGH THE RELEVANT RECORD INCLUDING THE CASES RELIED UPON BY THE AUTHORITIES BELOW. WE ARE CONVINCED FROM THE MATERIAL ON RECORD THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF THE PURCHASES IN QUESTION BY ADDUCING COGENT AND CONVINCING EVIDENCE. THE NOTICES ISSUED BY THE AO WERE RECEIVED BACK UN - SERVED. THE ASSESSEE ALSO FAILED TO PRODUCE THE PA RTIES BEFORE THE AO FOR VERIFICATION. HENCE, IN OUR CONSIDERED VIEW, THE AO HAS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS NOT MADE THE QUESTIONED PURCHASES FROM THE PARTIES MENTIONED IN THE BOOKS OF ACCOUNT. WE FURTHER NOTICE THAT , THE AO HAS NOT REJECTED TH E SALE OF THE GOODS SO PURCHASED. THE ABOVE - MENTIONED FACTS GIVE RISE TO THE CONCLUSION THAT THE ASSESSEE HAD PURCHASED THE GOODS IN QUESTION FROM GREY MARKET AND EVADED THE TAX APPLICABLE DURING THE RELEVANT PERIOD. UNDER THESE CIRCUMSTANCES, THE AO HAD N O OPTION BUT TO MAKE AN ADDITION ON ESTIMATION BASIS CONSIDERING THE APPLICABLE RATE OF VAT OR OTHER TAXES AND THE PROFIT EMBEDDED IN THE SAID TRANSACTION. IN THE FIRST APPEAL THE LD. CIT(A) HAS RESTRICTED THE ADDITION TO 12.5%, HOLDING THAT THE ESTIMATE R EACHED AT BY THE AO IS ON MUCH HIGHER SIDE. THE OPERATIVE PART OF THE DECISION OF THE LD. CIT (A) READS AS UNDER: - 5 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 7.4 WITH REGARD TO THE APPELLANTS RELIANCE ON VARIOUS DECISIONS, THERE ARE LARGE NUMBERS OF CASES, WHEREIN THE APPELLATE AUTHORITIES HAVE HELD THAT IT WOULD NOT BE APPROPRIATE TO CONSIDER THAT PURCHASES WERE GENUINE ONLY BECAUSE THE ASSESSEE MADE THE PAYMENT BY CHEQUE AND THE ASSESSEE RECEIVED BILLS. IT IS HELD BY VARIOUS COURTS THAT WHERE THE ASSESSEE COULD SHOW THAT HE HAS MADE THE PURCHAS ES AND THERE ARE CORRESPONDING SALES AGAINST THESE PURCHASES, IT WOULD BE APPROPRIATE TO TAX THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON - GENUINE PARTIES. IN VIEW OF FACTS STATED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT HAS MADE PU RCHASES OF RS. 4,19,781/ - IN THE OPEN MARKET WHICH WERE SOLD TO VARIOUS PARTIES AND THE BILLS WERE TAKEN FROM THE HAWALA OPERATORS. FURTHER THE VERIFICATION IN RESPECT OF THESE PARTIES COULD NOT BE MADE AND ASSESSEE HAS ALSO PAID SALES. IT IS NOT KNOWN AT WHAT PRICE THE APPELLANT ACTUALLY MADE THE PURCHASES FROM THIRD PARTIES. UNDER SUCH CIRCUMSTANCES THE LIKELIHOOD OF THE PURCHASES BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DISLODGE SUCH FINDINGS. IN THIS PROCESS THE APPELLANT SAVED ON THE SALES - TAX/VAT AND ENHANCED HIS PROFIT BY MANIPULATING THE PURCHASES. ON SIMILAR FACTS SMITH P. SHETH 356 ITR 451, GUJARAT, THE COURTS HAVE RESTRICTED ADDITION OF PERCENTAGE BASIS. THE APPELLATE AUTHORITIES HAVE ALSO STRESSED UPON THE REASONABILITY OF T HE PROFIT SHOWN BY THE PURCHASER WHILE MAKING ANY SUCH DISALLOWANCE. KEEPING THE GP OF THE ASSESSEE CONCERN IN MIND AND THE FACTS OF THE CASE, IT WOULD BE APPROPRIATE IF THE ADDITION IS RESTRICTED TO 12.5% OF BOGUS PURCHASES OF RS. 4,19,781/ - , AMOUNTING TO RS. 52,472/ - IS DISALLOWED. THIS ADDITION WILL BE OVER AND ABOVE THE PROFITS SHOWN BY THE APPELLANT IN HIS RETURN OF INCOME 6 . THE LD CIT(A) HAS RESTRICTED THE ADDITION TO 12.5%, BASICALLY ON THE GROUND THAT THE ADDITION OF TOTAL AMOUNT OF BOGUS PURCHAS ES IS ON MUCH HIGHER SIDE. IN THE CASE OF CIT VS. SIMIT P. SETH 356 ITR 451(GUJ) , THE HONBLE GUJRAT HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL AND SUSTAINED THE ADDITION 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE TRIBUNAL, HOLD ING THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO 6 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 INCOME OF THE ASSESSEE. HENCE, IN OUR CONSIDERED VIEW, THE ORDER PASSED BY THE LD. CIT(A) IS BASED ON THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE SAID CAS E. ON THE OTHER HAND, THE LAW RELIED UPON BY THE LD. DR IS DISTINGUISHABLE ON FACTS. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) TO INTERFERE WITH. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS THE SOLE GROUND OF T HE REVENUES APPEAL AND DIRECT THE AO TO MAKE ADDITION OF 12.5% OF THE TOTAL AMOUNT OF QUESTIONED PURCHASES. ITA NO. 5308 /MUM/2018 (ASSESSMENT YEAR: 2010 - 2011 ) ITA NO. 5309/MUM/2018 (ASSESSMENT YEAR: 2011 - 2012 ) THE FACTS OF THE REVENUES APPEAL S PERTAI NING TO THE AY 2010 - 11 AND 2011 - 12 ARE SIMILAR TO THE FACTS OF THE REVENUES APPEAL PERTAINING TO THE AY 2009 - 10 DISCUSSED ABOVE, EXCEPT THE AMOUNT OF BOGUS PURCHASES DETERMINED BY THE AO. SIMILARLY, THE ISSUES INVOLVED IN THESE APPEALS ARE IDENTICAL TO TH E REVENUES APPEAL PERTAINING TO THE AY 2009 - 10. SINCE THERE IS NO MATERIAL CHANGE IN THE FACTS OF THESE CASES, WE DO NOT NARRATE THE FACTS OF THESE CASES HERE TO AVOID REPETITION . 2. IN THESE CASES ALSO , THE AO TREATED THE PURCHASES SHOWN FROM THE HAWALA PARTIES AS BOGUS AND ADDED THE TOTAL AMOUNT OF BOGUS PURCHASES TO THE INCOME OF THE ASSESSEE. IN THE FIRST APPEAL, THE LD. CIT (A) RESTRICTED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DURING THE YEARS RELEVANT TO THE ASSESSMENT YEARS UN DER CONSIDERATION. 3. WE HAVE DISMISSED THE APPEAL OF THE REVENUE AND CONFIRMED THE ADDITION OF 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES ESTIMATED BY THE LD.CIT (A) IN ASSESSEES APPEAL PERTAINING TO THE ASSESSMENT YEAR 2009 - 10. SINCE, THERE IS NO MAT ERIAL CHANGE IN THE FACTS OF THE PRESENT CASES, CONSISTENT WITH OUR FINDINGS IN THE ASSESSEES OWN CASE FOR THE AY 2009 - 10, WE DISMISS THE APPEAL FILED BY THE REVENUE PERTAINING TO THE AYS 2010 - 11 AND 2011 - 12 FOR THE SAME REASONS AND DIRECT THE AO TO MAKE ADDITION OF 12.5% OF THE TOTAL AMOUNTS OF BOGUS 7 ITA NO S . 5307, 5308 & 5309 / MUM/2018 ASSESSMENT YEAR S : 2009 - 10, 2010 - 11 AND 2011 - 1 2 PURCHASES DETERMINED BY THE AO IN THE ASSESSMENT ORDERS FOR THE ASSESS MENT Y EARS 2010 - 11 AND 2011 - 12 . IN THE RESULT, APPEAL S FILED BY THE REVENUE FOR ASSESSMENT YEAR S 2009 - 10, 2010 - 11 AND 2011 - 12 ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER , 2019 . SD/ - SD/ - ( G. MANJUNATHA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI ; DATED: 11 / 10 / 201 9 ALINDRA, PS / 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// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI