B.J. EXPORTS, MUMBAI V. ASST CIT 30(1), MUMBAI

ITA 5442/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9600 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 07-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR M C OMI NINGSHEN
• Keywords: Bogus purchase; Unexplained expenditure; Accommodation entries; Onus to prove
• Section: 69C; 133(6); 148

Judgement Text

1 BJ EXPORTS GROUP IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5442-5444/MUM/2016 (ASSESSMENT YEARS : 2007-08, 2008-09 & 2009-10) M/S B.J. EXPORTS 6, LAXMI NARAYAN SHOPPING CENTRE, PODDAR ROAD, MALAD (E), MUMBAI-97 PAN : AAAFB0724E VS ACIT-30(1), MUMBAI APPELLANT RESPONDENT ASSESSEE BY SHRI MANISH AGRAWAL REVENUE BY DR. M.C. OMI NINGSHEN DATE OF HEARING 09-08-2017 DATE OF PRONOUNCEMENT 13-09-2017 O R D E R PER G MANJUNATHA, AM : THESE ARE APPEALS FILED BY ASSESSEE ARE DIRECTED A GAINST THE SEPARATE BUT IDENTICAL ORDERS OF CIT(A)-41, MUMBAI FOR ASSESSME NT YEARS 2007-08, 2008-09 & 2009-10. SINCE THE FACTS ARE IDENTICAL AND ISSUE IS ALSO COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER A ND ARE DISPOSED OF BY THIS COMMON ORDER. 2. IN THESE APPEALS, THE ASSESSEE HAS MORE OR LESS RAI SED COMMON GROUNDS. HOWEVER, THE ONLY SOLITARY ISSUE ARISING FROM THOSE GROUNDS OF APPEAL RELATE TO 2 BJ EXPORTS GROUP ADDITIONS MADE BY THE AO TOWARDS BOGUS PURCHASES FR OM ALLEGED HAWALA OPERATORS AND FINDINGS OF THE CIT(A) IN REDUCING TH E DISALLOWANCE MADE BY THE AO TO NET PROFIT ELEMENT IN THOSE ALLEGED BOGUS PUR CHASES. 3. THE BRIEF FACTS OF THE CASE AS EXTRACTED FROM ITA N O.5442/MUM/2016 ARE THAT THE AO HAS REOPENED THE ASSESSMENT, BASED UPON INFORMATION RECEIVED FROM THE DGIT (INV), MUMBAI ON A SEARCH ACTION COND UCTED ON SHRI BHANWARLAL JAIN GROUP THAT THE ASSESSEE IS A BENEFICIARY OF AC COMMODATION ENTRIES PROVIDED BY M/S LITTLE DIAM, ONE OF THE BENAMI CONC ERNS FLOATED BY SHRI BHANWARLAL JAIN. THE AO RELIED UPON THE STATEMENT RECORDED ON OATH DURING THE SEARCH PROCEEDINGS IN THE CASE OF SHRI BHANWARL AL JAIN AND HIS SON, SHRI RAJESH BHANWARLAL JAIN, WHEREIN THEY HAVE CONFESSED TO HAVE FLOATED DUMMI CONCERNS IN THE NAME OF FRIENDS AND RELATIVES OF GI VING ACCOMMODATION ENTRIES OF PURCHASES. ACCORDINGLY NOTICE U/S 148 OF THE IN COME-TAX ACT, 1961 WAS ISSUED. IN RESPONSE TO NOTICE U/S 148, THE ASSESSE E FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.12,78,131. THEREAFTER , THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142 (1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATI VE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED DETAILS CALLED FOR. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE IN SUPPORT OF GENUIN ENESS OF THE PURCHASES 3 BJ EXPORTS GROUP MADE FROM CERTAIN PARTIES. NOTICES U/S 133(6) OF T HE ACT WERE ISSUED, BUT THE NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES BY STATING THAT NO SUCH PERSONS WERE AVAILABLE AT THE GIVEN ADDRESSES. THEREFORE, THE AO ISSUED SHOW CAUSE NOTICE TO ASSESSEE ASKING IT TO SUBSTANTIATE THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE ALLEGE D HAWALA OPERATORS WITH NECESSARY EVIDENCE. IN RESPONSE, THE ASSESSEE FILE D PURCHASE INVOICES, EXPORT INVOICES, SHIPPING BILLS, AIRWAYS BILLS, EXPORT BIL L REALIZATION CERTIFICATES, BANK STATEMENT SHOWING PAYMENT FOR PURCHASES AND STOCK R EGISTERS TO PROVE THE PURCHASES MADE FROM THE ALLEGED PARTIES ARE GENUINE . THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AN D ALSO TAKING INTO ACCOUNT THE INFORMATION RECEIVED FROM DGIT (INV) FURTHER CO UPLED WITH INDEPENDENT ENQUIRIES CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, CAME TO THE CONCLUSION THAT THE ASSESSEE HAS TAKEN ACCOMMODATIO N ENTRIES OF PURCHASES FROM M/S LITTLE DIAM AND HENCE, THE PURCHASES FROM M/S LITTLE DIAM HAS BEEN TREATED AS UNEXPLAINED EXPENDITURE U/S 69C OF THE A CT, AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE CIT(A). BEFORE CIT(A), THE ASSESSEE REITERATED ITS STAND TAKEN BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT MERELY BECAUSE A THIRD PARTY HAS ALLEGED THAT CERTAIN PARTIES ARE INVOLVED IN PROVIDING ACCO MMODATION ENTRIES AND ALSO 4 BJ EXPORTS GROUP THEY ARE LISTED AS SUSPICIOUS HAWALA OPERATORS, ADD ITION CANNOT BE MADE IGNORING ALL EVIDENCES FILED IN THE FORM OF PURCHAS E INVOICE, EXPORT INVOICES, SHIPPING BILLS, AIRWAYS BILLS, EXPORT BILL REALIZAT ION CERTIFICATES, BANK STATEMENT SHOWING PAYMENT FOR PURCHASES AND STOCK DETAILS TO PROVE THAT THE PURCHASES MADE FROM THE SAID PARTIES ARE SOLD IN THE NORMAL C OURSE OF BUSINESS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS IN THE BUSINE SS OF EXPORT OF DIAMONDS AND PURCHASES FROM M/S LITTLE DIAM HAS BEEN EXPORTED FO R WHICH NECESSARY EVIDENCES IN THE FORM OF EXPORT INVOICES, SHIPPING BILLS, AIRWAYS BILLS, EXPORT BILL REALIZATION CERTIFICATES, BANK STATEMENT SHOWING PA YMENTS FOR PURCHASES HAVE BEEN FILED. THE ITEMS OF GOODS PURCHASED WITH QUAN TITATIVE DETAILS HAVE BEEN FILED BEFORE THE AO. THE AO HAS NOT POINTED OUT AN Y DISCREPANCY IN THE BOOKS OF ACCOUNT AND STOCK REGISTERS. IN THE ABSENCE OF ANY FINDING AS TO THE INCORRECTNESS OF BOOKS OF ACCOUNT AND STOCK REGISTE R, PURCHASES FROM THE ABOVE PARTIES CANNOT BE DOUBTED, MORE SO, WHEN ALL THE DE TAILS HAVE BEEN FURNISHED TO JUSTIFY THE PURCHASES. 6. THE CIT(A), AFTER CONSIDERING THE EXPLANATIONS OF T HE ASSESSEE AND ALSO RELYING UPON THE DECISION OF HONBLE GUJARAT HIGH C OURT IN THE CASE OF VIJAY PROTEINS LTD VS CIT (2015) 58 TAXMAN.COM 44 AND CIT VS SMIT P SHETH 356 ITR 451 (GUJ), HELD THAT THE EVIDENCES GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALED THAT THE ASSESSEE WAS ONE OF T HE BENEFICIARIES OF 5 BJ EXPORTS GROUP ACCOMMODATION ENTRIES PROVIDED BY SHRI BHANWARLAL J AIN GROUP. HE ALSO OBSERVED THAT IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT FILED NECESSARY EVIDENCES TO JUSTIFY THE PURCHASES FROM T HOSE PARTIES. THE FACT THAT NOTICES ISSUED U/S 133(6) TO THE ADDRESSES PROVIDED BY THE ASSESSEE HAVE BEEN RETURNED BY THE POSTAL AUTHORITIES UNSERVED ALSO IN DICATES THAT THE PARTIES ARE NOT EXISTED AT THE GIVEN ADDRESSES. ALL THESE FACT S GO TO PROVE THAT PURCHASES FROM THE ABOVE PARTIES ARE NOT GENUINE AND HENCE, T HE AO WAS RIGHT IN TREATING PURCHASES FROM SAID PARTY AS BOGUS IN NATURE. THE CIT(A) FURTHER OBSERVED THAT THE AO HAS NOT DISPUTED SALES DECLARED BY THE ASSES SEE. THE PURCHASES / SALES CO-RELATION HAS NOT BEEN CONTROVERTED BY THE AO. N O DISCREPANCY IN STOCK HAS BEEN POINTED OUT. THE FACT THAT PAYMENTS MADE FOR THE PURCHASES ARE ROUTED THROUGH BANKING CHANNELS IS NOT DISPUTED. NO EVIDE NCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE CASH PAYMENT MADE ON THE PU RCHASES HAS BEEN PAID BACK TO THE ASSESSEE BY THE SELLER. THUS, AT BEST, IT CAN BE CONCLUDED THAT THE PRIMARY INPUTS BEHIND AVAILING SUCH BOGUS BILLS WAS TO REDUCE THE PROFITS. IN THE FACTS AND CIRCUMSTANCES AND ALSO BY CONSIDERING THE RATIO OF JUDGEMENT OF HONBLE GUJARAT HIGH COURT CITED SUPRA, THE CIT(A) DIRECTED THE AO TO ESTIMATE PROFIT OF 30% ON THE ALLEGED BOGUS PURCHASES. AGGR IEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN 6 BJ EXPORTS GROUP DISALLOWING 30% OF THE PURCHASES MADE FROM M/S LITT LE DIAM IGNORING THE FACT THAT THE PURCHASES WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THE PURCHASES ARE EXPORTED IN THE NORM AL COURSE OF BUSINESS OF THE ASSESSEE. THE LD.AR FURTHER SUBMITTED THAT MER ELY BECAUSE THIRD PARTIES HAD MADE UNSUBSTANTIATED STATEMENTS, IT CANNOT NOT BE SAID THAT THE PURCHASES MADE BY THE ASSESSEE WERE BOGUS OR UNVERI FIABLE. THE ASSESSEE HAS DISCHARGED ITS ONUS BY FURNISHING ALL DETAILS CALLE D FOR TO PROVE THE GENUINENESS OF THE PURCHASES. IN THE ABSENCE OF INCORRECTNESS OF BOOKS OF ACCOUNT OR STOCK REGISTERS, MERELY ON THE BASIS OF THIRD PARTY STATE MENT ADDITION CANNOT BE MADE IN SPITE OF PRODUCING ALL THE DETAILS. 8. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT PURCHASES FROM ABOVE PARTI ES ARE BOGUS IN NATURE WHICH IS EVIDENT FROM THE FACT THAT THE PARTIES HAVE ACCE PTED BEFORE DGIT (INV) THAT THEY ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIE S. THE LD.DR REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F N.K. PROTEINS LTD IN SLP 759 OF 2017 DATED 16-01-2017 SUBMITTED THAT ONCE IT IS PROVED THAT THE PURCHASES ARE BOGUS, THEN ADDITION SHOULD BE MADE F OR ENTIRE PURCHASES AND NOT FOR PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. IN THIS CASE, ALL EVIDENCES LEAD TO A CONCLUSION THAT THE ASSESSEE HAS TAKEN AC COMMODATION ENTRIES FROM THE ABOVE PARTIES AND HENCE, THE AO HAS RIGHTLY MAD E ADDITION TOWARDS BOGUS 7 BJ EXPORTS GROUP PURCHASES AND HIS ORDER SHOULD BE RESTORED. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL S AVAILABLE ON RECORD. THE AO DISALLOWED PURCHASES MADE FROM CERT AIN PARTIES ON THE BASIS OF INFORMATION RECEIVED FROM DGIT (INV) WHICH WAS F URTHER SUPPORTED BY THE LIST PREPARED BY MAHARASHTRA SALES-TAX DEPARTMENT W HICH SHOWS THESE PARTIES AS SUSPICIOUS HAWALA OPERATORS INVOLVED IN PROVIDIN G ACCOMMODATION ENTRIES. THE AO FURTHER OBSERVED THAT DURING THE COURSE OF S EARCH IN BHANWARLAL JAIN GROUP, SHRI BHANWARLAL JAIN AND HIS SON SHRI RAJESH BHANWARLAL JAIN ADMITTED THAT THEY HAVE FLOATED DUMMY CONCERNS IN THE NAME O F FRIENDS AND RELATIVES, WHICH WERE ENGAGED IN GIVING ACCOMMODATION ENTRIES. THE AO, BASED ON THE INFORMATION RECEIVED FROM DGIT (INV) COUPLED WITH F URTHER INDEPENDENT ENQUIRIES CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, CAME TO THE CONCLUSION THAT THE PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE AND ASSESSEE FAILED TO SUBSTANTIATE THE ABOVE PURCHASES WITH NECESSARY EVIDENCES. ACCORDING TO THE AO, THOUGH ASSESSEE FURNISHED PURC HASE INVOICES AND PROOF OF PAYMENTS, THE FACT THAT THE PARTIES THEMSELVES ADMI TTED THAT THEY WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES, THE EV IDENCES FILED BY THE ASSESSEE CANNOT BE TAKEN AS CONCLUSIVE TO HOLD THE PURCHASES AS GENUINE IN NATURE. THE CONTENTION OF THE ASSESSEE IS THAT MER ELY BECAUSE PARTIES HAVE NOT RESPONDED TO THE NOTICE, ADDITION CANNOT BE MADE TO WARDS PURCHASES, WHICH 8 BJ EXPORTS GROUP ARE SUPPORTED BY PROPER EVIDENCES. THE ASSESSEE AL SO CONTENDED THAT THE AO HAS NOT POINTED OUT ANY IRREGULARITY IN THE BOOKS O F ACCOUNT OR STOCK STATEMENT AND IN THE ABSENCE OF ANY FINDING AS TO THE INCORRE CTNESS OF BOOKS OF ACCOUNT, ADDITION CANNOT BE MADE SOLELY ON THE BASIS OF THIR D PARTY STATEMENT. 10. THE AO MADE ADDITIONS BASED ON THE INFORMATION RECE IVED FROM MAHARASHTRA SALES-TAX DEPARTMENT AND THE DGIT (INV) . THE AO FURTHER OBSERVED THAT THE PARTIES HAVE ADMITTED BEFORE THE SALES-TAX DEPARTMENT THAT THEY ARE PROVIDING ACCOMMODATION ENTRIES WITHOUT AC TUAL DELIVERY OF GOODS. WE FIND THAT THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE HAS MADE PURCHASES FROM CERTAIN PARTIES WHO ARE INV OLVED IN PROVIDING ACCOMMODATION ENTRIES. NO DOUBT, THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES TO PROVE THE PURCHASES AS GENUINE. BUT T HE FACT REMAINS THAT THE NOTICES ISSUED U/S 133(6) TO THE ADDRESSES GIVEN BY THE ASSESSEE WERE RETURNED UNSERVED WITH REMARK NO SUCH PARTIES ARE AVAILABLE AT THE GIVEN ADDRESS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT MERE PRODUCTION OF PURCHASE BILL AND PAYMENT PROOF WOULD NOT ABSOLVE THE ASSESSEE OF HIS INITIAL ONUS TO PROVE THE PURCHASES, MORE PARTICULARLY, WHEN OTHER FACTS CLEARLY SHOW A FINGER ON THE ASSESSEE THAT THE ABOVE PARTIES ARE INVOLVED IN ACC OMMODATION ENTRIES AND THE ASSESSEE IS ONE OF THE BENEFICIARIES OF SUCH ACCOMM ODATION ENTRIES. THEREFORE, THE AO WAS RIGHT IN TREATING THE PURCHASES MADE FRO M ABOVE PARTIES ARE NOT 9 BJ EXPORTS GROUP GENUINE. WE FURTHER OBSERVE THAT THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES INCLUDING PURCHASE BILLS AND PAYMENT PROO F TO PROVE THE PURCHASES. THE ASSESSEE ALSO PRODUCED BOOKS OF ACCOUNT AND STO CK DETAILS BEFORE THE AO. THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN BOOKS OF ACCOUNT AND STOCK REGISTERS. THE AO HAS NEVER DOUBTED SALES DECLARED BY THE ASSESSEE. IN THE ABSENCE OF ANY FINDING AS TO THE INCORRECTNESS IN B OOKS OF ACCOUNT AND STOCK REGISTERS, PURCHASES CANNOT BE DOUBTED. UNDER THES E FACTS AND CIRCUMSTANCES IT CAN BE CONCLUDED THAT THE ASSESSEE HAS OBTAINED BILLS TO REDUCE PROFITS. HENCE, WHAT NEEDS TO BE TAXED IN THIS CASE IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES, BUT NOT THE ENTIRE PURC HASES FROM THE ABOVE PARTIES. 11. HAVING SAID SO, LET US EXAMINE WHAT IS REASONABLE P ROFIT IN CASE OF THESE TRANSACTIONS. VARIOUS COURTS AND TRIBUNALS HAVE UP HELD ESTIMATION OF PROFIT RANGING FROM 12.5% TO 25% DEPENDING UPON FACTS AND CIRCUMSTANCES OF EACH CASE. THE HONBLE GUJARAT HIGH COURT IN THE CASE O F VIJAY PROTEINS LTD VS ACIT (SUPRA) HAS UPHELD ESTIMATION OF NET PROFIT AT 15% ON BOGUS PURCHASES. IN YET ANOTHER CASE, THE HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS SMIT P SHETH (SUPRA) HAS TAKEN A VIEW THAT NO UNIFORM YARDSTICK CAN BE APPLIED FOR ESTIMATION OF NET PROFIT WHICH DEPENDS UPON FACTS A ND CIRCUMSTANCES OF EACH CASE. THE HONBLE HIGH COURT FURTHER OBSERVED THAT IN SUCH CASES, THE PROFIT 10 BJ EXPORTS GROUP ELEMENT EMBEDDED IN SUCH PURCHASES CAN ONLY BE ADDE D TO THE INCOME OF THE ASSESSEE. THE ITAT, MUMBAI BENCHES IN SEVERAL CASE S HAS UPHELD ESTIMATION OF NET PROFIT AT 12.5% ON SUCH PURCHASES. THEREFORE, CONSIDERING THE OVERALL FACTS & CIRCUMSTANCES OF THE CASE AND ALSO RELYING UPON T HE RATIO OF CASE LAWS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT IN THE CAS E OF BOGUS PURCHASES, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE TAXED BUT NOT TOTAL PURCHASES. ACCORDINGLY, WE DIRECT THE AO TO ESTIMA TE NET PROFIT AT 12.5% ON TOTAL ALLEGED BOGUS PURCHASES. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 13. THE FACTS AND CIRCUMSTANCES IN ITA NOS 5443 & 5444/ MUM/2016 ARE IDENTICAL TO ITA NO.5442/MUM/2016 BUT FOR THE FIGUR ES WHICH WE HAVE DECIDED ABOVE. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENT ICAL THE DECISION AND DISCUSSION MADE IN THE FOREGOING PARAGRAPHS EQUALLY APPLY TO THESE APPEALS ALSO. THE AO IS DIRECTED TO ESTIMATE NET PROFIT AT 12.5% ON TOTAL ALLEGED BOGUS PURCHASES FOR ASSESSMENT YEARS 2008-09 AND 2009-10 ALSO. THESE APPEALS ARE PARTLY ALLOWED. 14. IN THE RESULT, ALL THE THREE APPEALS ARE PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2017. SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 13 TH SEPTEMBER, 2017 11 BJ EXPORTS GROUP PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI