MANJIRAM D. PATEL, MUMBAI V. ITO 19(2)(3), MUMBAI

ITA 5366/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7405 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 17-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K S DEHIYA
• Keywords: Bogus purchase; Opportunity of being heard; Question of law; Corroborative evidences; Reassessment proceedings; Set aside
• Section: 133(6); 143(1); 201; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5366/MUM/2018 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 5367/MUM/2018 ASSESSMENT YEAR: 2011 - 12 MANJIRAM D. PATEL, C/O D.C. BOTHRA& CO. LLP (CA) (FORMERLY KNOWN AS D.C. BOTHRA& CO.) 297, TARDEO ROAD, WILLE MANSION, 1 ST FLOOR, OPP. BANK OF INDIA, NANA CHOWK, MUMBAI - 400007 VS. ITO 19(2)(3), MATRUMANDIR, 2 ND FLOOR, TARDEO ROAD, MUMBAI - 400007. PAN NO. AGRPP9759J APPELLANT RESPONDENT ASSESSEE BY : MR. RAJ KUMAR SINGH, AR REVENUE BY : MR. L.K.S. DEHIYA CIT - DR , & MS. JOTHI LAKSHMI NAYAK, SR. DR DATE OF HEARING : 07/10/2019 DATE OF PRONOUNCEMENT: 16/10/2019 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX - (APPEALS) - 30, MUMBAI [ IN SHORT THE CIT(A) ] AND ARISE OUT OF ASSESSMEN T U/S143(3) R.W.S. 14 7 OF THE INCOME TAX ACT 1961, (THE ACT). FACTS BEING IDENTICAL, WE BEGIN WITH THE AY 201 0 - 1 1. MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 2 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER : 1. THAT ON FACTS OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN UPHOLDING T HE VALIDITY OF THE REASSESSMENT PROCEEDING INITIATED U/S 147 BY ISSUE NOTICE U/S 148 ON WRONG FACTS AND IN UNLAWFUL MANNER. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.9,53,092/ - BEING 12.5% OF THE PURCHASE OF TRADING GOODS MADE FROM THE ALLEGED SUSPICIOUS HAWALA DEALERS OF RS.76,24,733/ - WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW. 3. AT THE START OF THE HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE APPELLANT WOULD NOT LIKE TO PRESS THE 1 ST GROUND OF APPEAL. HAVING CONSIDERED THE SAME, THE 1 ST GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. NOW WE TURN TO THE 2 ND GROUND OF A PPEAL. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2010 - 11 ON 27.09.2010 DECLARING TOTAL INCOME AT RS.5,42,140/ - . THE ASSESSEE HEREIN DEALS WITH RESELLING IN FERROUS AND NON - FERROUS ME TALS. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, THE ASSESSING OFFICER (AO) RECEIVED INFORMATION FROM THE DIRECTOR GENERAL OF INCOME TAX (INV.), MUMBAI [IN SHORT DGIT ] THAT AS PER THE INQUIRY BY THE SALES TAX DEPARTMENT, GOVERNMENT OF MA HARASHTRA, THE ASSESSEE WAS A BENEFICIARY OF BOGUS BILLS PROVIDED BY THE ACCOMMODATION ENTRY PROVIDERS FROM THE FOLLOWING PARTIES : SR. NO NAME OF HAWALA PARTY F.Y. AMOUNT (RS.) 1. VARDHMAN TRADING CO. 2009 - 10 6,67,863 2. NEW EVEREST STEEL 2009 - 10 2,40,968 MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 3 3. KONICA TUBES INDUSTRIES 2009 - 10 7,80,827 4. OM METAL INDUSTRIES 2009 - 10 11,54,207 5. RAJESHWARI METAL INDUSTRIES 2009 - 10 13,42,476 6. SURAJ ENTERPRISES 2009 - 10 12,76,312 7. MARUTI IMPEX 2009 - 10 9,27,253 8. HARSHIL FERROMET PVT. LTD. 2009 - 10 12,34,827 TOTAL 76,24,733 ON THE BASIS OF THE ABOVE INFORMATION THAT THERE IS SUPPRESSION OF PRIMARY FACTS IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 DATED 18.09.2014. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE AO ISSUED NOTICE U/S 133(6) TO THE ABOVE PARTIES AT THE ADDRESS PROVIDED BY THE ASSESSEE. HOWEVER, THOSE NOTICES COULD NOT BE SERVED AND WERE RETURNED BACK UN - SERVED BY THE POSTAL AUTHORI TIES WITH THE REMARKS NOT KNOWN OR NO SUCH ADDRESS, LEFT. THERE AFTER, THE AO , IN ORDER TO VERIFY THE GENUINENESS OF THESE PARTIES AND PURCHASES MADE FROM THEM WI TH ADEQUATE SUPPORTING EVIDENCE, REQUESTED THE ASSESSEE TO PRODUCE THESE PARTIES BEFORE HIM ALONG WITH THEIR BOOKS OF ACCOUNTS. HOWEVER, THE ASSESSEE COULD NOT PRODUCE THESE PARTIES NOR FURNISH THEIR NEW ADDRESS BUT SIMPLY FURNISHED COPIES OF THE LEDGER ACCOUNTS IN THE BOOKS OF THE ASSESSEE, PURCHASE BILLS AND ASSESSEES BANK STATEMENT SHOWI NG THE PAYMENT MADE THROUGH BANKS. MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 4 SUBSEQUENTLY, THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS SUCH AS PURCHASE DETAILS, THE INVOICES/BILLS, LEDGER ACCOUNT, LORRY RECEIPTS, DOCUMENTARY EVIDENCE REFLECTING THE RELEVANT ENTRIES OF HAVING RECEIVED SUCH GO ODS IN THE PREMISES OF THE ASSESSEE AND HAVING CONSUMED SUCH GOODS, DETAILS OF PAYMENT MADE TO THESE PARTIES ETC. IN RESPONSE TO IT, THE ASSESSEE SUBMITTED PURCHASE INVOICES OF THE SAID PARTIES, COPIES OF BANK STATEMENTS EVIDENCING PAYMENTS MADE THROUGH BA NKING CHANNELS BY ISSUING ACCOUNT PAYEE CHEQUES IN RESPECT OF ALL THE PARTIES, HIGHLIGHTING THE RELEVANT ENTRIES, CHART SHOWING THE DETAILS OF PURCHASES OF THE ALLEGED PARTIES, QUANTITATIVE TALLY IN RESPECT OF ENTIRE PURCHASES OF THE ALLEGED PARTIES AND TH E CORRESPONDING SALES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE FOR THE REASON THAT THE SAID HAWALA PARTIES HAVE CONFESSED IN THE STATEMENT RECORDED ON OATH BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE NOT DONE ANY GENUINE BUSINESS AS WELL AS THERE WAS NO ACTUAL DELIVERY OF GOODS TO THE PARTIES. FURTHER TAKING INTO CONSIDERATION THE FACT THAT THE ASSESSEE COULD NOT FILE DOCUMENTS SUCH AS DELIVERY CHALLANS, TRANSPORT RECEIPTS, OCTROI RECEIPTS, RECEIPT OF WEIGHBRIDGE, EXCISE GATE PASS, GOODS INWARD REGISTER, HE ESTIMATED THE PROFIT EMBEDDED IN SUCH PURCHASES @ 12.5% OF RS.76,24,733/ - BY FOLLOWING THE DECISION IN THE CASE OF CIT V. SIMIT P. SHETH (ITA NO. 553 OF 2012 DATED 16.01.2013) AND THUS MADE AN ADDITION OF RS.9,53,092/ - . 4. IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE ABOVE DISALLOWANCE OF RS.9,53,092/ - . MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 5 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FILES A PAPER BOOK CONTAINING COPY OF THE DOCUMENTS FILED BEFORE THE AO AND CIT(A). FURTHER, HE FILES A COPY OF THE DECISION DATED 11.02.2019 OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT V. M/S MOHOMMAD HAJI ADAM & CO. (ITA NO. 1004 OF 2016) AND RELIES HEAVILY ON IT. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE S (DR S ) SUBMIT THAT THE DECISION IN M/S MOHOMMAD HAJI ADAM & CO . (SUPRA) CANNOT BE TAKEN AS A BINDING PRECEDENT AS THE FACTS IN THAT CASE AND THE PRESENT APPEAL DO NOT MATCH F ULLY. IT IS STATED BY THE LD. DR S THAT IN THE ABOVE DECISION, THE HONBLE HIGH COURT HAS CLEARLY RULED THAT NO QUESTION OF LAW AROSE IN THE ABOVE DECISION AND THEREFORE, THE RATIO LAID DOWN CANNOT BE APPLIED UNIFORMLY. FURTHER, IT IS STATED THAT CONSIDERIN G THE VALUE ADDED TAX (VAT) IN THE BOGUS PURCHASES, THE AO HAS RIGHTLY ESTIMATED THE PROFIT AT RS.9,53,092/ - ( 12.5% OF THE DISPUTED PURCHASES OF RS.76,24,733/ - ) WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) AND THE SAME BEING BASED ON THE FACTS OF THE CASE BE AFFIRMED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. IN THE INSTANT CASE, AS PER THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, THE ASSESSEE WAS A BENEFICIARY OF THE BOGUS BILLS PROVIDED BY THE ACCOMMODATION ENTRY PROVIDERS AMOUNTING TO RS.76,24,733/ - . THE NOTICES ISSUED B Y THE AO U/S 133(6) TO THE PARTIES WERE RETURNED BACK UN - SERVED BY THE POSTAL AUTHORITIES WITH THE REMARKS NOT KNOWN OR NO SUCH ADDRESS OR LEFT ETC. ON REQUEST FROM THE AO TO PRODUCE THE PARTIES ALONG WITH THEIR MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 6 BOOKS OF ACCOUNT, THE ASSESSEE FAILED TO PRODUCE THEM. ALSO THE ASSESSEE COULD NOT FILE DOCUMENTS SUCH AS DELIVERY CHALLANS, TRANSPORT RECEIPTS, OCTROI RECEIPTS, WEIGHBRIDGE RECEIPT, EXCISE GATE PASS, GOODS INWARD REGISTER BEFORE THE AO. HOWEVER, AS RECORDED BY THE AO AT PARA 5.4 OF THE ASSE SSMENT ORDER DATED 9.02.2016 THE ASSESSEE FILED BEFORE HIM THE PURCHASE INVOICES OF THE SPECIFIED PARTIES, COPIES OF THE BANK STATEMENT EVIDENCING PAYMENTS MADE THROUGH PROPER BANKING CHANNELS BY ISSUING ACCOUNT PAYEE CHEQUES IN RESPECT OF ALL THE PARTIES, HIGHLIGHTING THE RELEVANT ENTRIES, CHART SHOWING THE DETAILS OF PURCHASES OF THE ALLEGED PARTIES, QUANTITATIVE TALLY IN RESPECT OF THE ENTIRE PURCHASES FROM THE ABOVE NAMED PARTIES AND THE CORRESPONDING SALES. THE AO AT LE AST COULD HAVE VERIFIED THE PAYMENTS THROUGH BANKS IN RESPECT OF THE PURCHASES AS THE ASSESSEE HAD FILED THOSE DETAILS. THE AO HAS NOT DONE SO. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF M/S MOHOMMAD HAJI ADAM & CO. (SUPRA) HAS RELEVANCE TO THE PRESENT CASE. IN THAT CASE, DURING THE COURSE OF SURVEY OPERATIONS IN THE CASE OF ENTITIES FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES, THE DEPARTMENT COLLECTED INFORMATI ON SUGGESTING THAT SUCH PURCHASES WERE NOT GENUINE. THE AO NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES OF FABRICS WORTH RS.29.41 LAKHS FROM THREE GROUP CONCERNS, NAMELY M/S MANOJ MILLS, M/S ASTHA SILK INDUSTRIES AND M/S SHRI RAM SALES AND SYNTHETICS. ON THE BASIS OF STATEMENT RECORDED DURING SUCH MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 7 SURVEY OPERATIONS, THE AO CONCLUDED THAT THE SELLING PARTIES WERE ENGAGED ONLY IN SUPPLYING THE BOGUS BILLS, THAT THE GOODS IN QUESTION WERE NEVER SUPPLIED TO THE ASSESSEE, AND THEREFORE, THE PURCHASES WERE BOGUS . HE, THEREFORE, ADDED THE ENTIRE SUM IN THE HANDS OF THE ASSESSEE AS ITS ADDITIONAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO ACCEPTED THE FACTUM OF PURCHASES BEING BOGUS. HOWEVER, HE COMPARED THE PURCHASES AND SALES STATEME NTS OF THE ASSESSEE AND OBSERVED THAT THE DEPARTMENT HAD ACCEPTED THE SALE, AND THEREFORE, THERE WAS NO REASON TO REJECT THE PURCHASES, BECAUSE WITHOUT PURCHASES THERE CANNOT BE SALES. HE, THEREFORE, HELD THAT UNDER THESE CIRCUMSTANCES THE AO WAS NOT CORRE CT IN ADDING THE ENTIRE AMOUNT OF PURCHASES AS THE ASSESSEES INCOME. HE, THEREFORE, DELETED THE ADDITION REFRESHING IT TO 10% OF THE PURCHASE AMOUNT. HE ALSO DIRECTED THE AO TO MAKE ADDITION TO THE EXTENT OF DIFFERENCE BETWEEN THE GROSS PROFIT RATE AS PER THE BOOKS OF ACCOUNTS ON UNDISPUTED PURCHASES AND GROSS PROFIT ON SALES RELATING TO THE PURCHASES MADE FROM THE SAID THREE PARTIES. THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. THE REVENUE ALSO CARRIED THE ISSUE BEFORE THE TRIBUNAL. THE TRIBUNAL A LLOWED THE APPEAL OF THE ASSESSEE PARTLY AND DISMISSED THAT OF THE REVENUE. THE TRIBUNAL NOTED THAT THE CIT(A) HAD NOT GIVEN ANY REASONS FOR RETAINING 10% OF THE PURCHASES BY WAY OF AD - HOC ADDITIONS. THE TRIBUNAL, THEREFORE, DELETED SUCH ADDITIONS, BUT RET AINED THE PORTION OF THE ORDER OF THE CIT(A) TO THAT EXTENT HE PERMITTED THE AO TO TAX THE ASSESSEE ON THE BASIS OF DIFFERENCE IN THE GP RATES. IN FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT, THE REVENUE REFERRED TO THE DECISION OF THE DIVISION BEN CH OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. V. DCIT IN MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 8 TAX APPEAL NO. 240 OF 2003 AND CONNECTED APPEALS DECIDED ON 20.06.2016 AND ALSO POINTED OUT THAT THE SLP AGAINST SUCH DECISION WAS DISMISSED BY THE HONBLE SUPREME COURT. T HE HONBLE BOMBAY HIGH COURT HELD : 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME 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 THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE A ND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED 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 THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER - SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,70,78,125/ - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDE D IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 9 AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES TO 5.66 %. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/ - WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. WE FIND THAT THE FACTS IN THE INSTANT CASE ARE SIMILAR TO THE ABOVE DECISION. FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON DISPUTED PURCHASES AT THE SAME RATE OF OTHER GEN UINE PURCHASES. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE FINALIZING THE ORDER. FACTS BEING IDENTICAL, OUR DECISION FOR THE AY 2010 - 11 APPLIES MUTATIS MUTANDIS TO AY 2011 - 12. 8. IN THE RESULT, THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT 16/10/2019. SD/ - SD/ - ( RAVISH SOOD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 16/10/2019 RAHUL SHARMA, SR. P.S. MONJIRAM D. PATEL ITA NOS. 5366 & 5367/MUM/2018 10 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// ( ASSISTANT REGISTRAR ) ITAT, MUMBAI