ITO 27(1)(1), MUMBAI V. AJAY MANOHAR DARARA, MUMBAI

ITA 5689/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9753 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI
• Assessee Lawyers: VIRAJ Y MEHTA
• Keywords: Bogus purchase; Set aside
• Section: 142(1); 201; 143(2); 139(1); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC , MUMBAI BEFORE S HRI G. MANJUNATHA (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 5689 /MUM/2018 ASSESSMENT Y EAR: 2009 - 10 THE ITO - 27(1)(1), TOWER NO. 6, 4 TH FLOOR, ROOM NO. 406, VASHI RLY. STATION COMPLE X, VASHI, NAVI MUMBAI VS. SHRI AJAY MANOHAR DARARA, B - 136, GHATKOPAR INDUSTRIAL ESTATE, LBS MARG, GHATKOPAR (W), MUMBAI - 400086 PAN: ABKPD4896Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI R. BHOOPATHI (D R) ASSESSEE BY : SHRI VIRAJ Y. MEHTA (CA ) DATE OF HEARING: 03/10 /201 9 DATE OF PRONOUNCEMENT: 11 / 10 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 11.07.2018 PASSED BY THE CO MMISSIONER OF INCOME TAX (APPEALS) - 25 (FOR SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR 2009 - 10 , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED T HE APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED U/S 1 4 3(3) READ WITH SECTION 147 OF THE IN COME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E PROPRIETOR OF M/S HYCON INDUSTRIES, ENGAGED IN THE BUSINESS OF MANUFACTURING OF OFFICE AND SCHOOL FURNITURE AND EXECUTIVE CHAIRS ETC., FILED ITS RETURN OF INCOME F OR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME OF RS.8,86,598/ - . SUBSEQUENTLY, IT CAME TO THE NOTICE OF THE AO THAT THE ASSESSEE HAD SHOWN PURCHASES AMOUNTING TO RS. 1,32,435/ - / - FROM TWO BOGUS PARTIES DECLARED BY THE SALES TAX DEPARTMEN T, MAHARASHTRA WHO USED TO PROVIDE ACCOMMODATION BILLS WITHOUT SUPPLYING ANY GOODS. ACCORDINGLY, THE AO ISSUED NOTICE U/S 148 2 ITA NO. 5689 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 OF THE ACT. THE ASSESSEE SUBMITTED THAT THE ORIGINAL RETURN FILED U/S 139(1) OF THE ACT BE TREATED AS THE RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. THEREAFTER THE AO ISSUED NOTICES U/S 143(2) AND 142(1) OF THE ACT. IN RESPONSE THEREOF, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED THE DETAILS. THE ASSESSEE CONTENDED THAT THE PURCHASES WERE GENUINE L Y MADE FROM THE AFORESAID PARTIES , HOWEVER , THE AO REJECTING THE CONTENTION OF THE ASSESSEE , TREATED THE QUESTIONED PURCHASES AS BOGUS TRANSACTION AND MADE ADDITION OF SAID AMOUNT TO THE INCOME OF THE ASSESSEE AND DETERMINED THE TOTAL INCOME OF THE ASSESSE E AT RS. 10,19,030/ - . THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE RESTRICTED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES. AGAINST THE SAID FINDINGS, THE REVENUE IS IN APPE AL BEFORE THE TRIBUNAL. 4 . THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUNDS : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 1,15 ,881 / - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE BILLS, VOUCHERS AND OTHER DOCUMENTARY EVIDENCES IN SUPPORT OF HIS CLAIM AND WITHOUT CONSIDERING THE LATEST APEX COURT DECISION IN THE CASE OF N.K. PROTEIN LTD. WHEREIN IT IS HELD THAT ONCE IT IS PROVED THAT THE PURCHASES ARE BOGUS THEN ADDITION SHOULD BE MADE ON ENTIRE PURCHASE AND NOT ON PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN ESTIMATING THE PROFIT FROM HAWALA PURCHASES BY DISALLOWING ONLY RS. 16,554 / - BEING 12.5% OF BOGUS PURCHASES AS EVEN THE BASIC ONUS OF PRODUCING TRANSPORT BILLS, DELIVERY CHALLANS ETC. WERE NOT FULFILLED BY THE ASSE SSEE. 5. THE LD. DR SUBMITTED BEFORE US THAT SINCE THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS OF PROVING GENUINENESS OF THE TRANSACTION OF PURCHASE BY ADDUCING COGENT EVIDENCE, THE LD. CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION 3 ITA NO. 5689 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 MADE BY THE AO IN ACCO RDANCE WITH THE LAW LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF N.K. PROTEINS LTD. [1996] 58 ITD 428 . THE LD. DR FURTHER SUBMITTED THAT S INCE THE ACTION OF THE LD. CIT (A) IS NOT IN ACCORDANCE WITH THE PRINCIPLE OF LAW LAID DOWN BY THE HONB LE GUJARAT HIGH COURT, THE SAME IS LIABLE TO SET ASIDE. 6 . ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF THE LD. CIT(A) SUBMITTED THAT SINCE THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS OF ESTABLISHING GENUINENESS OF THE PUR CHASES BY SUBMITTING THE DOCUMENTARY EVIDENCE, THE AO HAS WRONGLY MADE 100% ADDITION OF THE ALLEGED BOGUS PURCHASES. PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD , THE LD. COUNSE L SUBMITTED THAT MERELY BECAUSE THE ASSESSEE COULD NOT PRODUCE THE PARTIES BEFORE THE AUTHORITIES BELOW, IT COULD NOT BE CONCLUDED THAT THE GOODS WERE NOT PURCHASED. THE LD. COUNSEL FURTHER SUBMITTED THAT IN ANY CASE THE LD. CIT (A) HAS RIGHTLY RESTRICTED THE ADDITION TO 12.5% OF THE TOTAL AMOUNT OF THE ALLEGED BOGUS PURCHASES AND THERE IS NO MERIT IN THE REVENUES APPEAL. 7 . WE HAVE CAREFULLY GONE THROUGH THE RELEVANT RECORD INCLUDING THE CASES RELIED UPON BY THE AUTHORITIES BELOW. WE ARE CONVINCED FROM TH E MATERIAL ON RECORD THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF THE PURCHASES IN QUESTION BY ADDUCING COGENT AND CONVINCING EVIDENCE. THE NOTICES ISSUED BY THE AO WERE RECEIVED BACK UN - SERVED. THE ASSESSEE ALSO FAILED TO PRODUCE THE PARTI ES BEFORE THE AO FOR VERIFICATION. HENCE, IN OUR CONSIDERED VIEW, THE AO HAS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS NOT MADE THE QUESTIONED PURCHASES FROM THE PARTIES MENTIONED IN THE BOOKS OF ACCOUNT. WE FURTHER NOTICE THAT, THE AO HAS NOT REJECTED THE S ALE OF THE GOODS SO PURCHASED. THE ABOVE - MENTIONED FACTS GIVE RISE TO THE CONCLUSION THAT THE ASSESSEE HAD PURCHASED THE GOODS IN QUESTION FROM GREY MARKET AND EVADED THE TAX APPLICABLE DURING THE RELEVANT PERIOD. UNDER THESE CIRCUMSTANCES, THE AO HAD NO O PTION BUT TO MAKE AN ADDITION ON ESTIMATION BASIS CONSIDERING THE APPLICABLE RATE OF VAT OR OTHER TAXES AND THE PROFIT EMBEDDED IN THE SAID TRANSACTION. IN THE FIRST APPEAL THE LD. CIT(A) HAS RESTRICTED THE ADDITION TO 4 ITA NO. 5689 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 12.5%, HOLDING THAT THE ESTIMATE REAC HED AT BY THE AO IS ON MUCH HIGHER SIDE. THE OPERATIVE PART OF THE DECISION OF THE LD. CIT (A) READS AS UNDER: - 5.3.6 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDICIAL PRONOUNCEMENTS CITED ABOVE, WHAT CAN BE DISALLOWED OR TAXED IN THE INSTANT CASE, IS THE EXCESS PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES SHOWN TO HAVE BEEN MADE FROM AFORESAID PARTY. AS NARRATED EARLIER, THE AO IN THIS CASE HAS HELD THAT THE PARTIES FROM WHOM THE PURCHASES WERE MADE BY THE APPELLANT WERE FOUND TO BE BOGUS , ESTIMATIONS RANGING FROM 12.5% TO 25% HAVE BEEN UPHELD BY THE HONBLE GUJARAT HIGH COURT, DEPENDING UPON THE NATURE OF THE BUSINESS. 5.3.6 .1 IN A NUMBER /SERIES OF RECENT CASE, INVOLVING THE ISSUE OF BOGUS PURCHASES CARRIED OUT IN A ORGANIZED MANNER THR OUGH SOME HAWALA OPERATORS AND THE MODUS OPERANDI UNEARTHED BY THE MAHARASHTRA SALES TAX DEPARTMENT, THE HONBLE MUMBAI TRIBUNAL HAS ESTIMATED THE G.P ADDITION IN THE HANDS OF THE PURCHASERS ON ACCOUNT OF SUCH BOGUS PURCHASES AS 12.5%. SOME OF WHICH ARE LI STED BELOW: - I) SMT. KIRANNAVINDOSHI IN ITA NO. 2601/MUM/2016 DATED 18.01.2017. II) ASHWINPURSHOTAM BAJAJ & ANR. VS. ITO, IN ITA NO. 4736/MUM/2014, 5207/MUM/2014, DATED 14 - 12 - 2016. III) ITO & ANR. VS. MANISH KANJI PATEL & ANR., IN ITA NO. 7299/MUM/2014, 7154/MUM/2012 & 7300/MUM/2014, 7627/MUM/2014, DATED 18.05.2017. IV) RONAK METAL INDUSTRIES VS. ITO, ITA NO. 722/MUM/2017 DTD. 04.09.2017. V) METROPOLITAN EXIMCHEM LTD. ITA NO. 2935/M/2015, DATED 29 - 03 - 2017. VI) ITO VS. JUGRAJ R. JAIN, ITA NO. 2571/MUM/2016 & 2572/M/2016 DTD. 02.08.2017. VII) B.J. EXPORTS VS. ASST. COMMISSIONER OF INCOME TAX, ITA NO. 5442 - 5444/MUM/2016 DATED 13.09.2017. VIII) BATLIBOI ENVIRONMENT ENGINEERING LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX, ITA NO. 2840 & 3482/M/2015 DATED 15.03.2 017. IX) DEPUTY COMMISSIONER OF INCOME TAX & ANR. VS. REMI PROCESS PLANT & MACHINERY LTD. & ANR. ITA NO. 1723/M/2015, 1817/M/2015 DATED 21.03.2017. 5 ITA NO. 5689 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 X) SMT. USHA B. AGARWAL VS. ITO, ITA NO. 7034/MUM/2016 DATED 01.09.2017. 6 IN VIEW OF THE ABOVE DISCUSSED F ACTUAL MATRIC AND PRECEDENTS, I AM OF THE VIEW THAT ESTIMATION OF 12.5% AS PROFIT EMBEDDED IN IMPUGNED TOTAL INCOME RETURNED, WOULD MEET THE ENDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT @ 12.5% OF THE ALLEGED BOGUS PURCHASES, WHICH WORKS OUT TO RS. 16,554/ - ( @ 12.5% OF RS. 1,32,435/ - ) AND RESTRICT THE ADDITION TO RS. 16,554/ - . THE APPELLANT GETS A RELIEF FOR THE BALANCE AMOUNT OF RS. 1,15,881/ - . THUS THE GROUND NO. 1, 3 & 4 IS PARTLY ALLOWED. 8 . THE LD CIT(A) HAS RESTRICTED THE ADDITION TO 12.5%, BASICALLY ON THE GROUND THAT THE ADDITION OF TOTAL AMOUNT OF BOGUS PURCHASES IS ON MUCH HIGHER SIDE. IN THE CASE OF CIT VS. SIMIT P. SETH 356 ITR 451(GUJ) , THE HONBLE GUJRAT HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL AND SUSTAINED THE A DDITION OF 12.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE TRIBUNAL, HOLDING THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE. HENCE, IN OUR CONSIDERED VIEW, THE ORDER PASSED BY THE LD. CIT(A) IS BAS ED ON THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE SAID CASE. ON THE OTHER HAND, THE LAW RELIED UPON BY THE LD. DR IS DISTINGUISHABLE ON FACTS. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) TO INTERFERE WI TH. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS THE SOLE GROUND OF THE REVENUES APPEAL AND DIRECT THE AO TO MAKE ADDITION OF 12.5% OF THE TOTAL AMOUNT OF QUESTIONED PURCHASES. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2009 - 2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER , 2019 . SD/ - SD/ - ( G. MANJUNATHA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 11 / 10 / 201 9 ALINDRA, PS 6 ITA NO. 5689 / MUM/2018 ASSESSMENT YEAR: 2009 - 1 0 / 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// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI