ITO 24 (2)(3), MUMBAI V. KAILASH S. MAKHIJA, MUMBAI

ITA 5470/MUM/2018

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6144 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 26-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• Assessee Lawyers: M K PATEL
• Keywords: Bogus purchase; Question of law; Accommodation entries
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENC H MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBE R & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.5470/MUM/2018 ( ASSESSMENT YEAR :2009-10 ) ITO, WARD-24(2)(3) ROOM NO.609, 6 TH FLOOR PIRAMAL CHAMBERS, PAREL MUMBAI-400 012 VS. KAILASH S MAKHIJA 405, BASERA LOKHANDWALA COMPLEX ANDHERI(WEST) MUMBAI-400 053 PAN/GIR NO. AA CPM4315L APPELLANT ) .. RESPONDENT ) REVENUE BY AKHTAR H. ANSARI ASSESSEE BY M.K.PATEL DATE OF HEARING 15/10/2019 DATE OF PRONOUNCEME NT 15 /10/2019 / O R D E R PER BENCH : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)36, MUM BAI, DATED 31/05/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009- 10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT (A) WAS JUSTIFIED IN RESTRICTING THE AD DITION TO 8% AS AGAINST 12.5% MADE BY THE AO, NOTWITHSTANDING THAT THE ASSE SSEES NAME WAS LISTED BY THE SALES TAX DEPARTMENT AS A BENEFICIAR Y OF ACCOMMODATION ENTRIES PROVIDED BY BOGUS DEALERS/SELLERS AND THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS UNABLE PRO DUCE THE IMPUGNED PARTIES OR TO FURNISH SUBSTANTIATING EVIDE NCE IN THE FORM OF LORRY RECEIPTS, STOCK REGISTER, ETC TO PROVE THE GENUINEN ESS OF THE PURCHASES. ITA NO.5470/MUM/2018 KAILASH S MAKHIJA 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ALL TYPES OF LEATHER GOODS, LIKE LADIES/GENTS PURSES, BAGS, BELT ETC, FI LED ITS RETURN OF INCOME FOR AY 2009-10 ON 29/09/2009,DECLARING TOTAL INCOME OF RS. 6,29,090/-. THEREAFTER, THE CASE HAS BEEN REOPENED U/S 147, ON THE BASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGAT ION, MUMBAI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF M AHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WH O HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PARTIES IN MUMBAI T O REDUCE OR SUPPRES PROFITS. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE OF THE BENEFICIARY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASES FROM VARIOUS PARTIES AS LISTED BY THE AO IN HIS ASSESSMENT ORDER AMOUNTING TO RS. 17,52,504/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN C OMPLETED U/S. 143(3).R.W.S. 147 OF THE I.T.ACT, 1961 ON 10/10/201 6 AND DETERMINED TOTAL INCOME OF RS. 8,48,150/-, AFTER MAKING ADDITI ONS TOWARDS ALLEGED BOGUS PURCHASE @ 12.50% OF TOTAL PURCHASES FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 2,19,063/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS FILED ELABORATED WRITTEN SUBMISSIONS, ON THE ISSUE , WHICH HAS BEEN REPRODUCED AT PARA 3 ON PAGES 3 TO 5 OF LD.CIT(A) O RDER. THE SUM AND SUBSTANCE OF THE ARGUMENTS OF THE ASSESSEE BEFO RE THE LD.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHICH IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COULD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM T HIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE ITA NO.5470/MUM/2018 KAILASH S MAKHIJA 3 AND ALSO, ON ANALYSIS OF INFORMATION COLLECTED DURI NG THE COURSE OF SEARCH AND ALSO BY FOLLOWING THE DECISION OF HONBL E GUJARAT HIGH COURT, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) SCALED DOWN ADDITION TO 8% PROFIT ON ALLEGED BOGUS PURCHAS ES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 4.2.6 THUS, A STUDY OF DIFFERENT CASES, WHEREIN A DDITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN DEALT WITH BY VARIOUS COUR TS AND TRIBUNALS SHOWS THAT SUCH ADDITIONS HAVE BEEN UPHELD IN THEIR ENTIRETY ONLY IN A FEW CASES INCLUDING DECISIONS RENDERED IN THE CASES OF LAMADLCA, SRI GANESH RICE MILLS, VICKY POODS (P.) LTD, ETC, WHERE APART FROM VARIOUS OTHER FACTORS THERE WAS LACK OF RELIABLE RECORD WITH REFE RENCE TO QUANTITATIVE DETAILS ETC, AND WHERE EVIDENCE PRODUCED FOR PAYMEN T WAS FOUND LACKING. IN OTHER CASES, WHERE THE FULL QUANTITATIVE DETAILS ARE NOT AVAILABLE OR DETAILS PRODUCED WERE NOT FULLY RELIABLE INASMUCH A S CONSUMPTION OF MATERIAL WAS SHOWN BUT YIELD WAS TOO LOW AND PAYMEN TS WERE ALSO DOUBTFUL (INCLUDING THE CASES OF VIJAY PROTEINS LTD ., BHOLTATATH POLY FAB PVT. LID., SIMIT P. SHETH, SANKER STEEL TRADERS. SA TYANARAYAN P. RATHIETC.) ADDITION WAS UPHELD IN THE RANGE OF 25%( AS JN VIJAY PROTEINS CASE) TO 12.5% TO AUGMENT THE POSSIBLE SUPPRESSION IN GP APPLYING REAL INCOME THEORY DEPENDING ON THE FACTS OF THE CASE. H OWEVER, PERUSAL OF DECISIONS OF TRIBUNALS AND HIGH COURTS ON THIS ISSU E SHOWS THAT ALL SUCH CASES ARE DECIDED ON THE BASIS OF FACTS AND INVOLVE NO UNIFORM QUESTION OF LAW. FROM THE ABOVE DECISIONS, THE GROUND-RULE T HAT EMERGES IS THAT WHERE SUPPLIERS ARE NOT AVAILABLE, THE PRESENCE OF REASONABLE QUANTITATIVE DETAILS AND PAYMENTS BY ACCOUNT PAYEE CHEQUES ARE PRIMARY TESTS ON WHEN THE GENUINENESS OF PURCHASES IS REQUI RED TO BE TESTED, M ADDITION, FROM CASES LIKE NIKUNJ EXIMP ENTERPRISES (P.) LID (HIGH COURT AS WELL AS 1TAT), M. K BROTHERS, NANGALA FABRICS PVT. LTD., RAJIV G. KALATHII, PERMANAND, SAGAR BOSE, DIAGNOSTICS ETC., IT EMERGES THAT OTHER ASPECTS SUCH AS STATEMENTS OF HAWALA PROVIDERS RECORDED BY SALES TAX AUTHORITIES; AFFIDAVITS FILED BY SUCH SUPPLIERS BEF ORE SALES TAX AUTHORITIES; ABSENCE OF EVIDENCE IN SUPPORT OF TRAN SPORTATION/DELIVERY OF MATERIAL ETC., BEEN HELD LESS RELEVANT AS MERE INDI CATORS AND NOT DECISIVE FACTORS, TO DRAW A CONCLUSION REGARDING GENUINENESS OF PURCHASES. THUS, IN ESSENCE, THE BENEFIT DERIVED BY THE ASSESSES BY SHOWING PURCHASES FROM SUCH BOGUS PARTIES IS THE LOWERING OF GP THAT WOULD HAVE BEEN EARNED BY THE ASSESSEE HAD SUCH PURCHASES AND CORRE SPONDING SALES BEEN REMOVED FROM THE ACCOUNTS. IN OTHER WORDS, THE EFFECTIVE LOWERING OF THE GP IS THE REAL ADDITIONAL INCOME OF THE ASSESSE E BY SHOWING SUCH PURCHASES AND ONLY SUCH COMPONENT WOULD THEREFORE H E TAXABLE. 4.2.7. KEEPING IN MIND THE TOTALITY OF THE FACTS AN D CIRCUMSTANCES AND THE GUIDELINES LAID DOWN IN JUDICIAL DECISIONS DISCUSSE D ABOVE, IT WOULD BE ADEQUATE TO MEET THE ENDS OF JUSTICE, IF THE DISALL OWANCE IS TO THE RESTRICTED TO 8 PERCENT OF THE BOGUS PURCHASES OF R S. 1752,504/- WHICH ITA NO.5470/MUM/2018 KAILASH S MAKHIJA 4 AMOUNTS TO RS.140200/-. THE AO IS, THEREFORE, DIREC TED TO RESTRICT THE DISALLOWANCE AS ABOVE. AO IS DIRECTED TO GIVE APPEAL EFFECT KEEPING IN MIN D APPELLANTS OBJECTION AFTER EXAMINATION OF RECORD AND LAW. THE GROUNDS OF APPEAL ARE TREATED AS DISPOSED. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES @ 12.50% OF SUCH PURCHASES, ON THE GROUN D THAT THE ASSESSEE ONE OF THE BENEFICIARY OF ACCOMMODATION EN TRIES OF BOGUS PURCHASE BILLS ISSUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE FURTHER EVIDENCE IN THE BACKDROP OF CLEAR FINDING B Y THE SALES TAX DEPARTMENT, MAHARASHTRA THAT THOSE PARTIES ARE INVO LVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDU CTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTI CE ISSUED U/S 133(6) TO THE PARTY WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION THAT PURCHASE FROM THE SAID PARTY IS BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT A PURCHASE FROM THE ABOV E PARTY IS SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS, STOCK DETAI LS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHA SES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND ALS O, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES FA ILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTH OUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FI LE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO SATISFACTIONS OF THE LD.AO. AT THE ITA NO.5470/MUM/2018 KAILASH S MAKHIJA 5 SAME TIME, THE LD. AO HAD ALSO FAILED TO TAKE THE I NVESTIGATION TO A LOGICAL CONCLUSION BY CARRY OUT NECESSARY ENQUIRES, BUT HE SOLELY RELIED UPON INFORMATION RECEIVED FROM INVESTIGATIO N WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHA RASHTRA SALES TAX DEPARTMENT. UNDER THESE CIRCUMSTANCES, IT IS D IFFICULT TO ACCEPT ARGUMENTS OF BOTH THE SIDES. FURTHER, VARIOUS HIGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGH T OF INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD TH AT IN CASE PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA D EALERS , ONLY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIM E OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARD STICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. TH E ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSU E AND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE PROFIT OF 10 TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CA SE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO H AS ESTIMATED 12.50% PROFIT, WHEREAS THE LD.CIT(A) HAS SCALED DOW N ESTIMATION OF PROFIT TO 8% ON TOTAL ALLEGED BOGUS PURCHASE. ALTHO UGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPO RT SAID RATE OF GROSS PROFIT WITH NECESSARY EVIDENCES OR ANY COMPAR ABLE CASES. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF T HIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED OPINION THAT THE LD . CIT(A) HAS TAKEN ONE OF THE POSSIBLE METHOD FOR ESTIMATION OF PROFIT TO SETTLE DISPUTE BETWEEN THE PARTIES AND HENCE, WE ARE INCLINED TO U PHOLD ORDER OF THE LD. CIT(A) AND DISMISS APPEAL FILED BY THE REVE UNE.. ITA NO.5470/MUM/2018 KAILASH S MAKHIJA 6 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /10/2 019 SD/- (MAHAVIR SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 15/10/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI DATE INITIAL 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//