ASHUTOSH HEMANT JOSHI, MUMBAI V. ITO 19(2)(1), MUMBAI

ITA 5544/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9750 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 02-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: R V SHAH
• Keywords: Bogus purchase
• Section: 142(1); 133(6)

Judgement Text

1 ITA 5544/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A.NO. 5544/MUM/2014 (ASSESSMENT YEAR : 2010-11) ASHUTOSH HEMAN JOSHI 401-402, HOLY HOCK CROSS CHS LTD, INDRANARAYAN CROSS LANE, SANTACRUZ (W), MUMBAI-54 PAN : ACUPJ0545P VS ITO, 19(2)(1), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI AJAY SINGH & R V SHAH RESPONDENT BY SHRI RAJAT MITTAL DATE OF HEARING 24 -07-2017 DATE OF PRONOUNCEMENT 28- 07-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)- 30, MUMBAI AND IT PERTAINS TO AY 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS RU NNING A PROPRIETORY BUSINESS IN THE NAME OF STAR TRADING CORPORATION WH ICH IS TRADING IN IRON & STEEL PRODUCTS, INDUSTRIAL LUBRICANTS, AUTOMOTIVE L UBRICANTS AND SPECIALTY CHEMICALS. THE ASSESSEE HAS FILED HIS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2 ITA 5544/MUM/2014 2010-11 ON 30-09-2009 DECLARING TOTAL INCOME AT RS. 19,93,060. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES U/S 143 (2) AND 142(1) WERE ISSUED. IN RESPONSE TO THE NOTICES, THE AUTHORIZED REPRESEN TATIVE OF THE ASSESSEE APPEARED AND FILED NECESSARY DETAILS, AS CALLED FOR . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN HUGE SUNDRY DEBTORS AND CREDITORS. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS OF PURCHASE AND SUNDRY CREDITORS W ITH THEIR NAMES AND ADDRESSES TO CARRY OUT VERIFICATION OF THE PARTIES BY ISSUE OF NOTICE U/S 133(6) OF THE ACT ON A TEST BASIS. THE AO FURTHER OBSERVE D THAT OUT OF THE PARTIES TO WHOM NOTICES WERE ISSUED, NOTICES IN THREE CASES WE RE RETURNED BY THE POSTAL AUTHORITIES WITH REMARK NOT KNOWN. THE AO, THERE FORE, PROVIDED OPPORTUNITY TO THE ASSESSEE TO PRODUCE THOSE PARTIE S. IN RESPONSE, ASSESSEE HAS FILED LETTER DATED 17-12-2012 ALONG WITH COPIES OF PURCHASE INVOICES, CORRESPONDING SALES BILLS AND STATED THAT HE HAS MA DE PAYMENT FOR THE PURCHASES THROUGH BANKING CHANNEL. THE ASSESSEE FU RTHER STATED THAT HE HAS MADE PURCHASES FROM THOSE PARTIES THROUGH A BROKER IN CP TANK,HOWEVER, THE NAME OF THE BROKER WAS NOT FURNISHED. THEREFORE, T HE AO OPINED THAT PURCHASES MADE FROM THOSE PARTIES ARE BOGUS AND THE Y ARE DELIBERATELY DEBITED TO P&L ACCOUNT ONLY TO REDUCE THE BUSINESS PROFITS. THE ASSESSEE HAS NOT DISCHARGED HIS ONUS OF PROVING THE GENUINENESS OF PURCHASE TRANSACTIONS, 3 ITA 5544/MUM/2014 THEREFORE, HE DISALLOWED PURCHASES FROM THOSE PARTI ES AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 3. SIMILARLY, THE AO NOTICED THAT OUT OF THE PARTIES F ROM WHOM REPLIES WERE RECEIVED IN RESPONSE TO NOTICES U/S 133(6), IN RESP ECT OF 3 PARTIES, THERE IS A DIFFERENCE IN BALANCES SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT AND BALANCES CONFIRMED BY THOSE PARTIES; THEREFORE, ASS ESSEE WAS ASKED TO RECONCILE THE DIFFERENCE BETWEEN BALANCES APPEARED IN HIS BOOKS OF ACCOUNT WITH THE BALANCES CONFIRMED BY THE PARTIES. IN RES PONSE, THE ASSESSEE, VIDE HIS LETTER DATED 17-12-2012 SUBMITTED THAT HE HAD PURCH ASED MATERIAL FROM THOSE PARTIES ON REGULAR BASIS AND THE PAYMENTS HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. THE DIFFERENCE IN BALANCES APPEA RING IN THE BOOKS OF THE ASSESSEE AND THE BALANCE CONFIRMED BY THOSE PARTIES MAY BE DUE TO PRICE VARIATION, DISCOUNTS, QUALITY CLAIMS, FREE TRANSACT IONS, ETC. SINCE THOSE PARTIES ARE HAVING REGULAR BUSINESS AND ARE HAVING RUNNING ACCOUNTS, THE ASSESSEE HAD NOT RECONCILED THEIR BOOKS OF ACCOUNT NOR ASCERTAIN ED THE BALANCES IN THE BOOKS OF THOSE PARTIES, A FUTURE DATE MAY BE GIVE T O RECONCILE AND RECTIFY THE ERRORS. THE AO REJECTED THE REQUEST OF THE ASSESSE E FOR RECONCILIATION AND, THEREFORE, HELD THAT THE ASSESSEE FAILED TO EXPLAIN SATISFACTORILY WITH NECESSARY EVIDENCES. ACCORDINGLY, HE MADE ADDITIONS OF RS.7, 09,432. AGGRIEVED BY THE 4 ITA 5544/MUM/2014 ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. BEFORE CIT(A), ASSESSEEE REITERATED HIS SUBMISSIONS MADE BEFORE AO. THE CIT(A) FOR THE DETAILED REASONS RECORDED IN HIS ORD ER DTED 15-04-2013 CONFIRMED THE ADDITIONS MADE BY AO TOWARDS BOGUS PU RCHASES FROM THREE PARTIES AND DIFFERENCE IN SUNDRY CREDITOR BALANCES AND DISMISSED APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) , ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS ADDITION TOWARDS ALLEGED BOGUS PURCHASES MADE FROM THREE PARTIES. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT NOTICES IS SUED U/S 133(6) IN RESPECT OF 3 PARTIES WERE RETURNED UNSERVED WITH THE REMARK , NOT KNOWN BY THE POSTAL AUTHORITIES. THE AO MADE ADDITIONS OF RS.62 ,29,736 ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF PURCHASES FROM THOSE PARTIES. ACCORDING TO THE AO, NOTICES ISSUED TO TH E PARTIES HAVE BEEN RETURNED AND ALSO THE ASSESSEE FAILED TO PRODUCE THE PARTIES IN PERSON TO CROSS VERIFY THE PURCHASES. IT IS THE CLAIM OF THE ASSESSEE THAT HE HAS PURCHASED GOOD FROM THOSE PARTIES AND MADE PAYMENTS THROUGH PROPER BANK ING CHANNELS AND MERELY BECAUSE THE NOTICES ISSUED U/S 133(6) WERE R ETURNED CANNOT BE A BASIS 5 ITA 5544/MUM/2014 FOR MAKING ADDITIONS. THE ASSESSEE FURTHER SUBMITT ED THAT THE AO HAS NOT POINTED OUT ANY INCONSISTENCIES IN THE BOOKS OF ACC OUNT OR DIFFERENCE IN STOCK DETAILS. THE SALES DECLARED BY THE ASSESSEE ARE NO T DOUBTED. THEREFORE, THERE IS NO REASON FOR SUSPECTING PURCHASES MADE FROM THO SE PARTIES MERELY FOR THE REASONS THAT THE PARTIES HAVE NOT RESPONDED TO THE NOTICES. 6. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES I NCLUDING PURCHASE BILLS, CORRESPONDING SALES BILLS AND ALSO PAYMENT DETAILS FOR THE PURCHASES MADE FROM THOSE PARTIES. WE FURTHER OBSERVE THAT THE AO HAS NOT POINTED OUT ANY IRREGULARITIES IN THE BOOKS OF ACCOUNT MAINTAINED B Y THE ASSESSEE NOR MADE OUT ANY CASE OF DIFFERENCE IN STOCK RECORDS MAINTAINED BY THE ASSESSEE. THE AO NEVER DOUBTED SALES DECLARED BY THE ASSESSEE. HE M ADE ADDITIONS ONLY ON THE GROUND THAT NOTICES ISSUED U/S 133(6) WERE RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARK, NOT KNOWN. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADDITION TOWARDS ALLEGED BOGUS PURCHASES WITHOUT CONDUCTING FURTHER ENQUIRIES WITH REGARD TO THE COR RECTNESS OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. AT THE SAME T IME, IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS NOT FILED ANY OTHER EVID ENCE EXCEPT PURCHASE BILLS AND PAYMENT DETAILS FOR THOSE PURCHASES. THOUGH AS SESSEE HAS PROVED THE 6 ITA 5544/MUM/2014 INITIAL ONUS CAST UPON HIM, BUT FAILED TO SUBSTANTI ATE THE PURCHASE WITH FURTHER EVIDENCE IN THE FORM OF PRODUCING THE PARTIES IN PE RSON AS REQUIRED BY THE AO. THEREFORE, CONSIDERING THE OVERALL FACTS AND CIRCUM STANCES OF THE CASE, WE ARE OF THE VIEW THAT INSTEAD OF TAXING THE TOTAL ALLEG ED BOGUS PURCHASES, THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES ONLY NEEDS TO BE TAXED. IN THIS CASE, ASSESSEE HAS DECLARED A GROSS PROFIT OF 2% TO 6% IN THE PRECEDING FINANCIAL YEARS. WE FURTHER OBSERVE THAT THE ASSESSEE MIGHT HAVE SAVED THE TAX PORTION EMBEDDED IN SUCH PURCHASES. IF WE TAKE INTO ACCOUN T THE AVERAGE GROSS PROFIT DECLARED BY THE ASSESSEE AND THE PROBABLE SAVINGS O N ACCOUNT OF TAX PORTION ON BOGUS PURCHASES, THE ASSESSEE MIGHT HAVE SAVED A PROFIT OF 6-7% ON THOSE ALLEGED BOGUS PURCHASES. THEREFORE, CONSIDERING TH E FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO TO MEET THE ENDS OF JUSTICE, WE DEEM IT APPROPRIATE TO DIRECT THE AO TO ESTIMATE PROFIT OF 7% ON ALLEGED B OGUS PURCHASES FROM THOSE PARTIES. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S ADDITION TOWARDS DIFFERENCE IN CREDIT BALANCES IN 3 PARTIES ACCOUNT S. THE AO NOTED THAT OUT OF THE CONFIRMATIONS FURNISHED BY THE CREDITORS, THERE IS A DIFFERENCE IN 3 PARTIES ACCOUNTS. THE AO FURTHER OBSERVED THAT THE ASSESSE E HAS NOT EXPLAINED THE DIFFERENCE IN PARTIES ACCOUNTS WITH NECESSARY EVID ENCES. IT IS THE CONTENTION 7 ITA 5544/MUM/2014 OF THE ASSESSEE THAT THERE IS NO DIFFERENCE IN BALA NCES APPEAR IN THE PARTIES ACCOUNTS AS THOSE PARTIES ARE HAVING REGULAR BUSINE SS AND THE ACCOUNTS ARE RUNNING ACCOUNTS. THE ASSESSEE FURTHER CONTENDED T HAT THE PURCHASES ARE MADE FROM THE PARTIES ARE SUPPORTED BY PROPER PURCH ASE INVOICES AND THE PAYMENTS HAVE BEEN MADE THROUGH PROPER BANKING CHAN NELS. THEREFORE, THERE IS NO QUESTION OF ANY DIFFERENCE IN BALANCES APPEAR ED IN ASSESSEES BOOKS OF ACCOUNT AND BALANCES CONFIRMED BY THE PARTIES. EVE N IF THERE IS A DIFFERENCE IN BALANCES CONFIRMED BY THE PARTIES, THE DIFFERENCE M AY BE ON ACCOUNT OF PRICE VARIATION, DISCOUNTS ON PURCHASES, QUALITY CLAIMS, FREE TRANSACTIONS, ETC, THEREFORE, AN OPPORTUNITY MAY BE GIVEN TO RECONCILE THE DIFFERENCE. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE AO HAS MADE ADDITION TOWARDS DIFFERENCE IN CREDITORS ACCOUNT SOLELY ON THE BASIS OF LEDGER EXTRACTS FILED BY THE PARTIE S IGNORING SPECIFIC REQUEST MADE BY THE ASSESSEE FOR RECONCILIATION OF DIFFEREN CE. THE ASSESSEE CLAIMS THAT THE DIFFERENCE IN PARTIES ACCOUNT MAY BE FOR VARIO US REASONS INCLUDING DIFFERENCE IN PRICE REVISIONS, DISCOUNTS, QUALITY C LAIMS AND FREE TRANSACTIONS, WHICH NEEDS TO BE RECONCILED WITH NECESSARY EVIDENC ES. WE OBSERVE THAT IT IS QUITE POSSIBLE IN BUSINESS TRANSACTIONS THAT THERE MAY BE VARIANCE IN BILL OF CUSTOMERS AND FINAL PAYMENT MADE AGAINST SUCH BILLS BECAUSE OF VARIOUS 8 ITA 5544/MUM/2014 REASONS. AS REQUESTED BY THE ASSESSEE, THE AO OUGH T TO HAVE PROVIDED AN OPPORTUNITY TO THE ASSESSEE TO RECONCILE THE DIFFER ENCE BEFORE MAKING ADDITIONS. WE FURTHER NOTICE THAT THE ASSESSEE HAS FILED A PAPER BOOK WITH NECESSARY EVIDENCES EXPLAINING THE DIFFERENCE NOTIC ED BY THE AO IN THOSE PARTIES ACCOUNTS. THEREFORE, CONSIDERING THE OVER ALL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE VERIF IED BY THE AO IN THE LIGHT OF THE DETAILS FILED BY THE ASSESSEE. HENCE, WE SET A SIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO VERIFY THE RECONCILIATION FILED BY THE ASSESSEE BEFORE MAKING ANY ADDITION TOWARDS DIFFERENCE IN SUNDRY CR EDITORS ACCOUNTS. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 28 TH JULY, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT 5. DR /TRUE COPY/ ASSTT. REGISTRAR, ITAT, MUMBAI