ACIT- 27 (3), MUMBAI V. VIRTEX ENGINEERS, MUMBAI

ITA 5692/MUM/2018

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6143 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 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: 05-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATI
• Assessee Lawyers: PRAVIN N SHAH
• Keywords: Bogus purchase; Accommodation entries
• Section: 133(6); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENC H MUMBAI BEFORE G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.5692/MUM/2018 ( ASSESSMENT YEAR :2009-10 ) ACIT-27(3) ROOM NO.423, 4 TH FLOOR TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI NAVI MUMBAI-400 703 VS. VIRTEX ENGINEERS 3A, ASHIRWAD BUILDING, GOVANDI ROAD, CHEMBUR MUMBAI-400 071 PAN/GIR NO. A A AFV1343D ( APPELLANT ) .. ( RES PONDENT ) REVENUE BY R.BHOOPATI ASSESSEE BY PRAVIN N SHAH DATE OF HEARING 03/10/2019 DATE OF PRONOUNCEME NT 15 /10/2019 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)25, MUM BAI, DATED 13/07/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009- 10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CTT(A) ERRED IN DELETING THE ADDITION OF RS.23 R 193/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES, WITHOUT APPRECIATING TH E FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE BILLS, VOUCHERS AND OTHER DOC UMENTARY EVIDENCES IN SUPPORT OF HIS CLAIM AND WITHOUT CONSIDERING THE LATEST APEX COURT DECISION IN THE CASE OF N.K.PROTIENS LTD. WHEREIN IT IS HELD THAT ONCE D ISPROVED THAT THE PURCHASES ARE BOGUS THEN ADDITION SHOULD BE MADE ON ENTIRE PURCHASES AND NOT ON PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 2 II) ON THE FACTS AND CIRCUMSTANCES OF CASE AN D IN LAW, THE LD.CIT(A) ERRED IN ESTIMATING THE PROFIT FROM HAWALA PURCHASES BY D ISALLOWING ONLY RS.9,878/- BEING 12.5% OF THE BOGUS PURCHASES AS EV EN THE BASIC ONUS OF PRODUCING DELIVERY CHALLANS, TRANSPORT BILLS ETC. W ERE NOT FULFILLED BY THE ASSESSEE. (III) THE APPELLANT PRAYS THAT THE ORDER OF TH E CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RE STORED. IV) THE APPELLANT CRAVES LEAVE TO AMEND, MODIF Y AND ALTER ANY GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THIS CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEAM RADIATORS, COOLERS & FABRICATION OF MACHIN ES, FILED ITS RETURN OF INCOME FOR AY 2009-10, DECLARING TOTAL INCOME OF RS. 36,79,746/-. THEREAFTER, THE CASE HAS BEEN REOPENED U/S 147, ON THE BASIS OF INFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMB AI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHAR ASHTRA 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. 79,022/-. THE CAS E WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R.W.S. 147 OF THE I.T.ACT, 1961 ON 12/03/201 5 AND DETERMINED TOTAL INCOME OF RS. 37,12,820/-, AFTER MAKING ADDIT IONS TOWARDS ALLEGED BOGUS PURCHASE AMOUNTING TO RS. 33,071 FROM THOSE PARTIES AND MADE ADDITIONS OF RS. 33,071/-. ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 3 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 4 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 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 12.50% PROFIT ON ALLEGED BOGUS PUR CHASES. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- 5.3 HAVING CONSIDERED THE ASSESSMENT ORDER OF T HE AO AND THE SUBMISSIONS OF THE ASSESSEE, IT IS SEEN THAT THE MA IN PLUNK OF ASSESSEES ARGUMENTS REGARDING THE GENUINENESS OF THE PURCHASE S WAS THAT THE PAYMENT HAS BEEN MADE BY CHEQUE/BANKING CHANNELS AN D WHICH HAS NOT FOUND FAVOUR WITH COURT'S/TRIBUNAL'S PRONOUNCEMENTS LIKE IN THE CASE OF M/S. KANCHWALA GEMS VS. JCIT [ITA NO. 134/JP/2002 D ATED 10.12.2003 BY THE HON'BLE IT AT, JAIPUR WHEREIN IT IS HELD THA T PAYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SUFFICIENT TO ESTABLISH THE GEN UINENESS OF PURCHASES. THE SAID DECISION OF THE ITAT, JAIPUR HAS BEEN AFFI RMED BY THE HON'BLE SUPREME COURT IN THE CASE OF M/S. KACHWALA GEMS VS. JCIT (2006) 206 CTR (SC) 585: 288 1TR 10 (5C). THUS, THE MAIN CONTE NTION OF THE APPELLANT DOES NOT, MUCH WATER. THE AO HAS FORMED H IS VIEWS ABOUT THE BOGUS NATURE OF THE PURCHASES MADE BY THE APPELLANT FROM THE ABOVE PARTY ON THE BASIS OF STATEMENTS RECORDED BY THE SA LES TAX AUTHORITIES AS WELL AS FURTHER INQUIRIES CARRIED OUT BY HIM INDEPE NDENTLY. THE INFORMATION RECEIVED FROM THE SALES TAX AUTHORITIES WAS ONLY A PIECE OF EVIDENCE TO INITIATE IN-DEPTH INDEPENDENT INVESTIGATION ON THE ISSUE. THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ONE TO ONE RELATIONSHIP/ NEXUS BETWEEN THE PURCHASES AND SALES. THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE PARTY FROM WHOM PURCHASES HAVE BEEN ALLEGED TO HAVE BEEN MADE. THE APPELLANT HAS ALSO FAILED TO PRODUCE CORROBORATIVE EVIDENCE IN THE FORM OF TRANSPORTATION BILLS ETC. TO ESTABLISH THAT THE ALL EGED PURCHASES WERE ACTUALLY TRANSPORTED TO ITS PREMISES AND ENTERED IN THE STOCK REGISTER. IT IS ALSO A FACT THAT THE AO HAS NOT CONFRONTED THE ASSE SSEE WITH ALL THE ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 4 INFORMATION IN HIS POSSESSION LIKE STATEMENTS OF TH E ALLEGED HAWALA OPERATORS. FURTHER, THE AO STOPPED HIS INVESTIGATIO N WITH THE RETURN OF HIS 133(6) NOTICES. THE AO DID NOT GO AHEAD WITH MONEY TRAIL OF CHEQUES DEBITED IN THE APPELLANT'S BANK ACCOUNT TOWARDS THE ALLEGED PURCHASES THOUGH SUCH INVESTIGATION DO NOT LEAD TO CONCRETE R ESULTS IN THE CASE OF HAWALA DEALERS AND INVESTIGATORS OFTEN REACH DEAD E ND IN SUCH CASES JT IS NOT THE CASE OF THE AO THAT THE IMPUGNED PURCHAS ES HAVE CONCLUSIVELY BEEN ESTABLISHED AS NOT HAVING BEEN AFFECTED AT ALL . THE AO HAS ONLY FOUND THE IMPUGNED SUPPLIER AS A BOGUS PARTY. 5.3.1 IN THE FACTS AND THE CIRCUMSTANCES OF THE C ASE, THE TOTAL PURCHASES OF RS. 79,022/- SHOWN TO BE MADE FROM THE AFORESAID PARTY CANNOT BE HELD TO BE ENTIRELY BOGUS AND CONSEQUENTLY PEAK OF THE CREDIT STANDING IN THE NAME OF THE BOGUS PARTY CANNOT BE ADDED TO THE RETURNED INCOME. IT NEEDS TO BE APPRECIATED THAT IN ORDER TO ACHIEVE TH E REPORTED SALES/TURNOVER, THERE MUST BE SOME CORRESPONDING PU RCHASES, WHETHER EFFECTED FROM THE ALLEGED ENTRY PROVIDERS OR FROM T HE GREY MARKET WITHOUT HILLS. THUS, THERE OUGHT TO BE SOME PURCHASES MADE AND HENCE, ENTIRE DISALLOWANCE IS NOT JUSTIFIED. IN THIS REGARD, THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. NIKUNJ EXIMP ENTERPRISES (P.) LTD.. 372 ITR 619 (BOMBAY), IS QUI TE RELEVANT WHEREIN HON'BLE HIGH COURT HAS HELD THAT - 'WHEN THE ASSESSEE HAVE FILED LETTER OF CONFIRMATIO NS OF THE SUPPLIERS, BANK STATEMENTS HIGHLIGHTING THE PAYMENT ENTRIES THROUGH ACCOUNT PAVES CHEQUE, COPIES OF INVOICES, S TOCK RECONCILIATION STATEMENTS BEFORE THE AO; AND MERELY BECAUSE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO, ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NUT MADE BY THE ASSESSEE. THE AO CANNOT DISALLOW THE PURCHASES ON THE BASIS OF SUSPICION BE CAUSE THE SUPPLIERS WERE NOT PRODUCED BEFORE THEM.' 5.3.2 IN VIEW OF THE DISCUSSION AS ABOVE, IT IS CL EAR THAT MATERIALS PURCHASED AND SOLD BY THE APPELLANT CANNOT BE DOUBL ED THOUGH IT IS NOT POSSIBLE FOR THE ASSESSEE TO ESTABLISH ONE TO ONE N EXUS/LINK BETWEEN PURCHASES AND SALES. HOWEVER, THE FACT OF THE MATTE R REMAINS THAT THESE TRANSACTIONS ARE NOT VERIFIABLE FROM THE PARTY IN Q UESTION AS IT COULD NOT BE ESTABLISHED THAT PURCHASES HAD BEEN EFFECTED FROM T HE PARTY IN QUESTION. THUS, THE PURCHASE PRICES SHOWN ON THE INVOICES PRO DUCED COULD NOT BE SUBJECTED TO VERIFICATION AND AS SUCH IT WAS DIFFIC ULT TO ESTABLISH THE CORRECTNESS OF THE PURCHASE PRICES PAID FOR THE MAT ERIALS PURCHASED. IN THE ABSENCE OF ANY SUCH VERIFICATION AS TO THE CORR ECTNESS OF THE PRICE PAID FOR THE MATERIALS PURCHASED BY THE APPELLANT, THE PURCHASE PRICE PAID AS MENTIONED ON THE INVOICES/BILLS CANNOT BE ACCEPT ED AS THE CORRECT PRICE PAID FOR THE GOODS PURCHASED FROM SUCH PARTIE S. IN VIEW OF THE SAME, THE POSSIBILITY OF OVER-INVOICING OF THE MATE RIALS PURCHASED TO REDUCE THE PROFIT CANNOT BE RULED OUT. THEREFORE, T HE GROSS PROFIT RATE SHOWN BY THE APPELLANT FOR THE YEAR UNDER CONSIDERA TION CANNOT BE RELIED UPON. IN THE CIRCUMSTANCES, THE CORRECT APPROACH IN SUCH TRANSACTIONS WOULD BE TO ESTIMATE THE ADDITIONAL BENEFIT OR PROF IT EARNED ON THESE PURCHASES AND NOT TO DISALLOW THE ENTIRE PURCHASES FROM THE AFORESAID ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 5 PARTY. IN MY VIEW EITHER THE PURCHASES FROM SUCH PA RTY IS OVER INVOICED OR THE PURCHASES WERE ACTUALLY MADE BUT NOT FROM THE P ARTY FROM WHICH IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENT ATION. 5.3.3 IN MANY JUDICIAL PRONOUNCEMENTS ON THE ISSUE, THE COURTS HAVE TAKEN A CONSISTENT VIEW THAT IN CASE OF NON-EXISTEN T PARTIES FROM WHICH THE PURCHASES ARE SHOWN TO HAVE BEEN MADE, ONLY A P ART OF SUCH PURCHASES CAN BE DISALLOWED, PARTICULARLY IN SUCH C ASES WHERE THE CORRESPONDING SALES ARE NOT DOUBTED. ALTERNATIVELY, THE PROFIT EMBEDDED IN SUCH SALES AGAINST THE ALLEGED BOGUS PURCHASES S HOULD BE BROUGHT TO TAX. 5.3.4 IN THE CASE OF CIT-1 VS SIMIT P. SHEIH, JT A NO. 553 OF 2012, ORDER DATED 16/01/2013, WHILE DECIDING A SIMILAR ISSUE, T HE HON'BLE HIGH COURT OF GUJARAT HAS HELD THAT: 'WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) WITH RESPECT TO THE NATURE O F DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLI ERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DI D NOT OWN UP TO SUCH SALES. HOWEVER, VITAL QUESTION WHILE CONSID ERING WHETHER THE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSES OR ONLY THE PROFIT ELEMENT E MBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE PURCHASES THEM SELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCH ASES WERE ACTUALLY MADE BUT NOT FROM THE PARTIES FROM WHOM II WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENTATION. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TRADER IN STEEL T HE ASSESSES SOLD CERIUM QUANTITY OF STEEL, HE WOULD HAVE PURCHA SED THE SAME QUANTITY FROM SOURCE. WHEN THE TOTAL SALE IS ACCEPT ED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISSION ER (APPEALS) BELIEVED ASSESSEES THEORY THAT THE PURCHASES WERE N OT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTION ED IN THE BOOKS OF ACCOUNTS. THAT BEING THE POSITION, NO! THE ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURC HASES CAN HE ADDED TO THE INCOME OF THE ASSESSEE. SO MUCH IS CLE AR BY DECISION OF THIS COURT. IN PARTICULAR COURT HAS ALSO TAKEN A SIMILAR VIEW IN CASE OF COMMISSIONER OF INCOME TAX-IV VS. VIJAY M M ISTRY CONSTRUCTION LTD. VIDE ORDER DATED10.01.2011 PASSED IN TAX APPEAL NO. 1090 OF 2009 AND IN CASE OF COMMISSIONER OF INCOME TAX-I VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2012 PASSED IN TAX APPEAL NO.63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF TRIBUNAL M CASE OF VIJAY PROTEINS PVT LID. VS- CIT REPORTED IN 53 ITD 428 CAME TO BE APPR OVED.' 5.3.5 SIMILARLY, WHILE DEALING WITH AN IDENTICAL ISSUE, IN THE CASE OF CIT VS. BHOLANATH POLY FAB (P) LTD., I.T.A. NO. 63 OF 2012, IN THE ORDER DATE D 23/10/2012, THE HON'BLE HIGH COURT OF GUJARAT HAS H ELD AS UNDER: - ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 6 'WE ARE OF THE OPINION THT THE TRIBUNAL COMMITTED N O ERROR. WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHET HER THE PARTIES FROM WHOM SUCH PURCHASE WERE ALLEGEDLY MADE WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT. THE TRIBUN AL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO THE CONCLUS ION THAT THE ASSESSEE DID PURCHASE THE CLOTH AND SELL THE FINISH ED GOODS. IN THAT VIEW OF THE MATTER, AS NATURAL COROLLARY, NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE BUT THE PROFIT ELMENT E MBEDDED THEREIN WOULD BE SUBJECT TO TAX. THIS WAS THE VIEW OF THIS COURT IN THE CASE OF SANJAY OILCAKE INDUSTRIES V. CIT [2009] 316 ITR 274 (GUJ). SUCH DECISION IS ALSO FOLLOWED BY THIS COURT IN A JUDGMENT DATED AUGUST 16, 2011, IN TAX APPEAL NO.679 OF 2010 IN THE CASE OF CIT V. KISHOR AMRUTLAL PATEL. IN THE RESULT, TAX APPEAL IS DISMISSED. (EMPHASIS SUPPLIED) 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 NA RRATED 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, ESTI MATIONS RANGING FROM 12.5% TO 25% HAVE BEEN UPHELD BY THE HONBLE GUJAR AT HIGH COURT, DEPENDING UPON THE NATURE OF THE BUSINESS. 53.6.1 IN A NUMBER/SERIES OF RECENT CASES, INVO LVING THE ISSUE OF BOGUS PURCHASES CARRIED OUT IN A ORGANIZED MANNER THROUGH SOME HAWALA OPERATORS AND THE MODUS OPERAND] UNEARTHED BY THE M AHARASHTRA SALES TAX DEPARTMENT, THE HON'BLE MUMBAI TRIBUNAL HAS EST IMATED THE G.P ADDITION IN THE HANDS OF THE PURCHASERS ON ACCOUNT OF SUCH BOGUS PURCHASES AS 12.5%. SOME OF WHICH ARE LISTED BELOW: I) SMT. KIRAN NAVIN DVSHI IN ITA NO, 2601/MU M/2016 DATED 18.01.2017. II) ASHWIN PURSHOIAM BAJAJ & ANR. VS I TO & ANR., IN ITA NO.4736/MUM/2014 R 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 R 7627/MUM/2014, DATED: 18-05- 2017. IV) METROPOLITAN EXIMCHEM LTD., ITA NO. 29 35/MUM/2015 T DATED:29-03- 2017.; V) RONAK MEML INDUSTRIES VS. ITO, ITA NO. 72 2/MUM.2017 DTD. 104.09.2017; VI) ITO VS. JUGRAJ R. JAIN, ITA NO.2571/MUM/20 16 & 2572/MUM/2016 DTD. 02.08.2017; VII) B.J.EXPORTS VS. ASSTT COMMISSIONER OF IN COME TAX, ITA NO, 5442-5444/MUM/2016 DATED 13.09.2017; VIII) BATLIBOI ENVIRONMENTAL ENGINEERING LTD. VS . DEPUTY COMMISSIONER OF INCOME-TAX, ITA NO. 2840 & 3482/M/2015 DATED 15. 03.2017; ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 7 IX) DEPUTY COMMISSIONER OF INCOME-TAX & ANR. VS . RE MI PROCESS PLANT & MACHINERY LTD. & ANR., ITA NO. 1721/M/ 2015, 1817/M/2015 DATED 21.03.2017. X) SMT USHA B. AGARWAL VS. ITO, IT A NO. 7034/MUM/2016, DATED 01.09.2017. 5.3.7 IN VIEW OF THE ABOVE DISCUSSED FACTUAL MATR IX AND PRECEDENTS, I AM OF THE VIEW THAT ESTIMATION OF 12.5% AS PROFIT EMBE DDED IN IMPUGNED PURCHASES SHOWN FROM THE ALLEGED HAWALA PARTY AND A DDING THE SAME TO THE TOTAL INCOME RETURNED, WOULD MEET THE ENDS OF J USTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT @ 12.5% OF THE ALL EGED BOGUS PURCHASES, WHICH WORKS OUT TO RS. 9,878/-(@ 12.5% OF RS, 79,02 2/-) AND RESTRICT THE ADDITION TO RS. 9,878/-. THE APPELLANT GETS A RELIE F FOR THE BALANCE AMOUNT OF RS. 23,193/-. THUS, THE GROUNDS OF APPEAL NO. 3 & 4 OF THE APPELLANT ARE PARTLY ALLOWED. 5. WE HAVE HEARD LD. COUNSELS FOR BOTH THE SIDES, P ERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDER S OF THE AUTHORITIES BELOW ALONG WITH CERTAIN JUDICIAL PRECE DENTS. WE FIND THAT THE LD. AO HAS MADE ADDITIONS TOWARDS ALLEGED BOGUS PURCHASES ON PACK CREDIT BASIS, ON THE GROUND THAT THE ASSESSEE ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCH ASE BILLS ISSUED BY HAWALA DEALERS. ACCORDING TO THE LD. AO, ALTHOUG H ASSESEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAILED TO FILE F URTHER EVIDENCE IN THE BACKDROP OF CLEAR FINDING BY THE SALES TAX DEPARTME NT, MAHARASHTRA THAT THOSE PARTIES ARE INVOLVED IN PROVIDING ACCOMM ODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GOODS. THE LD. AO HAD AL SO TAKEN SUPPORT FROM THE INVESTIGATION CONDUCTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTICE ISSUED U/S 133(6) TO THE PARTY WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. THERE FORE, HE CAME TO THE CONCLUSION THAT PURCHASE FROM THE SAID PARTY IS BOGUS IN NATURE. IT IS THE CONTENTIONS OF THE ASSESSEE BEFORE THE LO WER AUTHORITIES THAT PURCHASES FROM THE ABOVE PARTY ARE SUPPORTED BY NEC ESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 8 ACCOUNTS, STOCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID PURCHASES HAVE BEEN MADE THROUGH PROPE R 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 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 MADE ADDITION TOWARDS BOGUS PURCHASE ON PACK CREDIT BALA NCE OF PARTIES, ITA NO.5692/MUM/2018 VIRTEX ENGINEERS 9 WHEREAS THE LD.CIT(A) HAS SCALED DOWN ESTIMATION OF PROFIT TO 12.50% ON TOTAL ALLEGED BOGUS PURCHASE. ALTHOUGH, B OTH AUTHORITIES HAVE TAKEN DIFFERENT RATE OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, BUT NO ONE COULD SUPPORT SA ID RATE OF GROSS PROFIT WITH NECESSARY EVIDENCES OR ANY COMPARABLE C ASES. 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.. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /1 0/2019 SD/- ( RAM LAL NEGI) 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 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//