RITA BHANWARLAL JAIN, MUMBAI V. INCOME TAX OFFICER WARD 4(3), Thane

ITA 5499/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6884 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 31-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Reopening of assessment; Bogus purchase; Tangible material; Accommodation entries; Reassessment proceedings
• Section: 142(1); 147; 148

Judgement Text

1 ITA 5499/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5499/MUM/2017 (ASSESSMENT YEAR: 2008-109) RITA BHANWARLAL JAIN GALA NO.12, 1 ST FLOOR, NEMINATH INDUSTRIAL, 4, NAVGHAR, VASAI PAN : AEFPJ6412G VS ITO, WD.4(3), THANE APPELLANT RESPONDENT APPELLANT BY SHRI RAHUL SARDA RESPONDENT BY SHRI RAM TIWARI DATE OF HEARING 23-05-2018 DATE OF PRONOUNCEMENT 20 -06-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE CIT(A)-3, THANE DATED 30-06-2017 AND IT PERTAIN S TO AY 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- I. ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE ENTIRE REASSESSMENT PROCEEDINGS INITIATED U/S 147 AND NOTICE ISSUED U/S 148 OF THE INCOME TAX ACT, 1961 ['THE ACT') BY THE LEARNED ASSESSING OFFICE ARE INVALID. THEREFORE , THE ENTIRE REASSESSMENT PROCEEDINGS BE QUASHED. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ADD ITION MADE BY THE AO OF RS. 44,94,655 ON ACCOUNT OF PURCHASES FROM ALLEGED NON GENUINE SUPPLIER IS BAD IN EQUITY AND TOTALLY UNWARRANTED. III. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECTION 234B, 234C, 234D OF THE ACT. 2 ITA 5499/MUM/2017 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, PROPRIETOR OF M/S KHUSHI TECHNOLOGIES ENGAGED IN THE BUSINESS OF RESA LE OF CHEMICALS, SURGICAL, FILTER PAPER AND GENERAL ITEMS, FILED HER RETURN OF INCOME FOR AY 2007-08 ON 20-10-2007 DECLARING TOTAL INCOME OF RS. 6,14,290. SUBSEQUENTLY, THE CASE HAS BEEN REOPENED ON THE BAS IS OF INFORMATION RECEIVED FROM DGIT (INV),MUMBAI THAT THE ASSESSEE H AD OBTAINED BOGUS PURCHASE BILLS FROM SUSPICIOUS DEALERS LISTED IN TH E LIST OF HAWALA OPERATORS PREPARED BY SALES-TAX DEPARTMENT. ACCORD INGLY, NOTICE U/S 148 WAS ISSUED ON 27-03-2014 CALLING FOR RETURN OF INCOME. IN RESPONSE TO NOTICE, THE ASSESSEE, VIDE LETTER DATED 21-04-20 07 SUBMITTED THAT THE RETURN FILED ON 20-10-2007 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. FURTHER, THE ASSESSEE H AS REQUESTED FOR REASONS FOR REOPENING OF ASSESSMENT. THE AO, IN RE SPONSE TO ASSESSEES REQUEST FURNISHED COPIES OF REASONS RECO RDED FOR REOPENING OF ASSESSMENT. THE CASE HAS BEEN SELECTED FOR SCRU TINY AND NOTICES U/S 143(2) AND 142(1) OF THE ACT ALONGWITH QUESTIONNAIR E WERE ISSUED. IN RESPONSE TO NOTICE, AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS, AS CAL LED FOR. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSE SSEE WAS ASKED TO FILE DETAILS IN RESPECT OF PURCHASES MADE FROM M/S OM NAVKAR 3 ITA 5499/MUM/2017 ENTERPRISES AND N.P. CHEMIE, IN THE BACKDROP OF INF ORMATION RECEIVED FROM INVESTIGATION WING THAT THE SAID PARTIES WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. IN RESPONSE, THE ASSESSEE, VIDE LETTER DATED 16-01-2015 SUBMITTE D THAT SINCE SHE HAD CLOSED DOWN HER BUSINESS ON HEALTH GROUND AND FAMIL Y MATTERS AND FOR WANT OF PEACE OF MIND SUBJECT TO NON LEVY OF PENALT Y WAS READY TO ACCEPT GROSS PROFIT OF 15% ON THE TRANSACTION EFFECTED THR OUGH THE ABOVE TWO FIRMS. HOWEVER, LATER ON, ON 09-02-2015, THE ASSES SEE HAS FILED ANOTHER LETTER OBJECTING TO THE REOPENING OF THE ASSESSMENT . 3. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS O F THE ASSESSEE AND ALSO TAKING INTO ACCOUNT INFORMATION RECEIVED F ROM SALES-TAX DEPARTMENT, OPINED THAT PURCHASES MADE FROM ABOVE T WO FIRMS IS NON GENUINE AS THE ASSESSEE FAILED TO FURNISH ANY EVIDE NCE TO SUPPORT PURCHASES MADE FROM ABOVE TWO CONCERNS. THE AO FUR THER OBSERVED THAT THOUGH THE ASSESSEE HAS FILED CERTAIN EVIDENCE S INCLUDING PURCHASE BILLS AND PAYMENT PROOF TO PROVE PURCHASES, FAILED TO FILE FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS OF THE DGIT (INV) THAT THE SAID PARTIES ARE HAWALA OPERATORS INVOLVED IN ISSUI NG BOGUS PURCHASE BILLS WITHOUT ACTUAL DELIVERY OF GOODS. ACCORDINGL Y MADE ADDITION OF RS.46,66,879 TO THE RETURNED INCOME. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL 4 ITA 5499/MUM/2017 BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS CHALLENGED REOPENING OF ASSESSMENT ON THE GROUND THAT THE AO H AS FORMED REASONABLE BELIEF OF ESCAPEMENT OF INCOME ONLY ON T HE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY SOURCES WITHO UT THERE BEING ANY TANGIBLE MATERIAL WHICH SUGGESTS ESCAPEMENT OF INCO ME. INSOFAR AS ADDITION MADE TOWARDS PURCHASES FROM M/S N.P. CHEMI E AND M/S OM NAVKAR ENTERPRISES, THE AO HAS MADE ADDITION TOWARD S PURCHASES FROM ABOVE PARTIES WITHOUT GIVING PROPER OPPORTUNITY OF CROSS EXAMINING THE ALLEGED NON GENUINE SUPPLIERS, WHOSE STATEMENTS WER E RELIED UPON BY THE AO. THE ASSESSEE FURTHER SUBMITTED THAT THE AO MADE ADDITION TOWARDS PURCHASE FROM ABOVE PARTIES MERELY ON THE B ASIS OF STATEMENTS OF THIRD PARTIES IGNORING ALL EVIDENCES FILED DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS INCLUDING PURCHASE BILLS, PA YMENT PROOF AND DETAILS OF PURCHASE AND SALES. ASSESSEE HAS FURNIS HED COMPLETE DETAILS OF SALES AND PURCHASES AND THE AO HAS NOT DOUBTED S ALES DECLARED IN THE YEAR. IN THE ABSENCE OF ANY FINDINGS AS TO THE INCORRECTNESS OF BOOKS OF ACCOUNT, PURCHASES MADE FROM THE ABOVE PARTIES C ANNOT BE CONSIDERED AS BOGUS, THAT TOO, WITHOUT ALLOWING CRO SS EXAMINATION OF THE PERSONS, WHO GAVE STATEMENTS. 5. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS R EJECTED GROUND RAISED 5 ITA 5499/MUM/2017 BY THE ASSESSEE CHALLENGING REOPENING OF THE ASSESS MENT BY HOLDING THAT THE AO HAS RECEIVED INFORMATION FROM DGIT(INV) WHICH CONSTITUTES A TANGIBLE MATERIAL FOR FORMATION OF REASONABLE BELIE F OF ESCAPEMENT OF INCOME, THEREFORE, THERE IS NO MERIT IN THE ARGUMEN TS OF THE ASSESSEE THAT THE AO HAS FORMED REASONABLE BELIEF WITHOUT TH ERE BEING ANY TANGIBLE MATERIALS. INSOFAR AS ADDITION MADE TOWAR DS DISALLOWANCE OF PURCHASES, THE CIT(A) OBSERVED THAT IT IS EVIDENT F ROM THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS SHE HAD ADMITTED ESTIMATION OF NET PROFIT OF 15% ON THE TRANSACTION EFFECTED THROUGH ABOVE SAID TWO FIRMS. THEREFORE, OPINED THAT THE AO WAS RIGHT IN MAKING ADDITION TOWARDS PURCHASE FROM ABOVE TWO PARTIES A ND ACCORDINGLY, CONFIRMED ADDITION MADE BY THE AO. AGGRIEVED BY TH E ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG SUBMITTED THAT THE ISSUE IS ALMOST SETTLED BY THE DECISIONS OF CO- ORDINATE BENCHES OF ITAT IN A NUMBER OF CASES, WHERE THE ITAT HAS TAKEN CONSISTENT VIEW IN THE CASE OF BOGUS PURCHASES AND DEPENDING UPON THE FACTS OF EACH CASE HAS DIRECTED THE AO TO ESTIMATE NET PROFIT OF 12.5% . THE LD.AR FURTHER SUBMITTED THAT IN CASE A SIMILAR VIEW IS TAKEN IN T HIS CASE, HE DID NOT WANT TO PRESS THE GROUND TAKEN TO CHALLENGE THE REO PENING OF ASSESSMENT. INSOFAR AS ADDITION MADE BY THE AO TOW ARDS DISALLOWANCE 6 ITA 5499/MUM/2017 OF PURCHASES, THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FILED ENORMOUS DETAILS TO PROVE PURCHASES, HOWE VER, THE AO HAS IGNORED ALL EVIDENCES ONLY ON THE BASIS OF INFORMAT ION RECEIVED FROM DGIT(INV) WITHOUT ALLOWING ASSESSEE TO CROSS EXAMIN E THE PERSONS, WHO GAVE STATEMENTS BEFORE THE SALES-TAX DEPARTMENT. T HE LD.AR FURTHER SUBMITTED THT THE AO IS INCORRECT IN MAKING ADDITIO N TOWARDS PURCHASES FROM ABOVE TWO PARTIES ONLY ON THE BASIS OF STATEME NT OF THIRD PARTIES IGNORING ALL EVIDENCES FILED BY THE ASSESSEE. 7. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE LOWER AUTHORITIES HAVE BROUGHT OUT CLEAR FACTS AND STATED THAT THE AS SESSEE HAS NOT PROVED PURCHASES FROM ABOVE TWO PARTIES WITH NECESS ARY EVIDENCES EXCEPT FILING PURCHASE BILLS AND PAYMENT PROOF. TH E AO HAS BROUGHT OUT CLEAR FACT TO THE EFFECT THAT THE PARTIES ARE INVOL VED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ANY ACTUAL BUSINESS W HICH HAS BEEN CONFIRMED DURING THE COURSE OF INVESTIGATION PROCEE DINGS IN STATEMENT RECORDED. THEREFORE, THERE IS NO MERIT IN THE ARGU MENT OF THE ASSESSEE THAT THE PURCHASES FROM ABOVE PARTIES ARE SUPPORTED BY VALID EVIDENCE. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS EFFECTED PURCHASES FROM M/S OM NAVKAR ENTERPRIS ES AND M/S N.P. CHEMIE WHICH APPEARED IN THE LIST OF HAWALA DEALERS PREPARED BY SALES- 7 ITA 5499/MUM/2017 TAX DEPARTMENT. THE INFORMATION RECEIVED FROM INVE STIGATION WING CLEARLY SHOWS THAT THE SAID PARTIES ARE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES AND THIS FACT HAS BEEN CONFIR MED IN THEIR STATEMENTS GIVEN BEFORE THE SALES-TAX AUTHORITIES. BASED ON THE ABOVE INFORMATION, THE AO REACHED TO THE CONCLUSION THAT PURCHASES FROM ABOVE TWO PARTIES ARE BOGUS IN NATURE AND HENCE MAD E ADDITION TOWARDS TOTAL PURCHASES FROM ABOVE TWO PARTIES. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES INCL UDING PURCHASE BILLS AND PAYMENT PROOF FOR THE PURCHASES. THIS FACT HAS NOT BEEN DISPUTED BY THE AO. IT IS ALSO AN ADMITTED FACT THAT THE AS SESSEE HAS MAINTAINED BOOKS OF ACCOUNT. THE AO HAS NOT POINTED OUT ANY I NCONSISTENCIES OR IRREGULARITIES IN THE BOOKS OF ACCOUNT. THE AO ALS O NOT DISPUTED SALES DECLARED BY THE ASSESSEE. UNDER THESE FACTS, IT IS DIFFICULT TO ACCEPT THE FINDINGS OF THE AO THAT PURCHASES FROM THE ABOVE TW O PARTIES ARE TOTALLY BOGUS AND ALSO IT IS NOT SUPPORTED BY VALID EVIDENC E. ALTHOUGH THE ASSESSEE HAS FILED CERTAIN BASIC EVIDENCE, BUT, FAI LED TO FURNISH FURTHER EVIDENCE IN THE BACKDROP OF FINDINGS OF INVESTIGATI ON DEPARTMENT OF SALES-TAX DEPARTMENT. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT THERE IS NO MERIT IN THE ARGUMENT OF THE ASSESSEE T HAT PURCHASES FROM ABOVE TWO PARTIES ARE GENUINE AND SUPPORTED BY VALI D EVIDENCE. 9. HAVING SAID SO, LET US EXAMINE WHAT IS THE ADDIT ION TO BE MADE IN 8 ITA 5499/MUM/2017 THESE KINDS OF CASES. THE CO-ORDINATE BENCH OF ITA T HAS TAKEN CONSISTENT VIEW IN CASE OF BOGUS PURCHASE AND DEPEN DING UPON FACTS OF EACH CASE, HAS DIRECTED TO ESTIMATE NET PROFIT AT 1 2.5% TO 15%. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY PRO TEINS LTD VS CIT 2017-TIOL-23-SG-IT HAS HELD THAT ADDITION CANNOT BE MADE TO TOTAL PURCHASES MADE FROM BOGUS SUPPLIERS, BUT WHAT NEEDS TO BE TAXED IS ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. IN YET ANOTHER CASE, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P SHETH 2013 (10) TMI 1028 OBSERVED THAT NO UNIFORM YARDSTICK COULD BE ADOPTED FOR ESTIMATION OF PROFIT ON BOGUS PURCHASES . THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IN CASE OF BOGUS PURCHA SES, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES NEEDS TO BE TAXE D BUT NOT TOTAL PURCHASES THAT TOO, WHEN ASSESSEE HAS FILED CERTAIN EVIDENCE TO JUSTIFY SUCH PURCHASES AND ALSO WHERE THE AO HAS NOT DOUBTE D SALES DECLARED BY THE ASSESSEE AND NOT POINTED OUT ANY MISTAKES IN BOOKS OF ACCOUNT MAINTAINED FOR THE FINANCIAL YEAR. 10. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON TOTAL ALLEGED BOGUS PURCHASES FR OM ABOVE TWO PARTIES. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS VALIDITY OF REOPENING OF ASSESSMENT U/S 1 47 OF THE ACT. THE 9 ITA 5499/MUM/2017 LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBM ITTED THAT IF A REASONABLE NET PROFIT IS ESTIMATED ON ALLEGED BOGUS PURCHASES, HE WOULD NOT WANT TO PRESS THE GROUND TAKEN FOR REOPENING OF ASSESSMENT. SINCE WE HAVE ALREADY TAKEN A DECISION TO ESTIMATE PROFIT ELEMENT EMBEDDED IN BOGUS PURCHASES AND DIRECTED THE AO TO ESTIMATE NET PROFIT OF 12.5% AS AGREED BY THE LD.AR FOR THE ASSESSEE, WE DISMISS GROUND TAKEN AGAINST REOPENING OF ASSESSMENT. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 20 TH JUNE, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI