ACIT- 27 (3), MUMBAI V. SANJAY B. PATNI, MUMBAI

ITA 5695/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8902 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAN
• Keywords: Bogus purchase; Unexplained expenditure; Peak credit; Question of law; Set aside
• Section: 69C; 133(6); 143(1)

Judgement Text

ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 5695/MUM/2018 (ASSESSMENT YEAR: 2009 - 10 ) ACIT - 27(3) R. NO. 423, 4 TH FLOOR, TOWER NO. 6, VASHI RAILWAY STATION, VASHI, NAVI MUMBAI 400703 VS. SHRI SANJAY B. PATNI 14 - B, GELDA SADAN, GOLIBAR LANE, GHATKOPAR (WEST) MUMBAI - 400086 PAN AGQPP9390J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N. PADMANABAN , SR. D .R RESPONDENT BY: NONE DATE OF HEARING: 06.01 .20 20 DATE OF PRONOUNCEMENT: 08 .01.2020 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 25, MUMBAI, DATED 13.07.2018, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O UNDER SEC.143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT), DATED 2 0.03.2015 FOR A.Y. 2009 - 10. THE REVENUE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS OF APPEAL BEFORE US: (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELET ING THE ADDITION OF RS.8,12,697/ - MADE BY THE AS SESSING 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 ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 2 CONSIDERING THE LATEST APEX COURT DECISION IN THE CASE OF N.K. PROTIENS LTD. WHEREIN IT IS HELD THAT ONCE IT IS PROVED THAT THE PURCHASES ARE BOGUS THEN ADDITION SHOULD BE MADE ON ENTIRE PURCHASES AND NOT ON PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. (II) ON THE FACT S AND CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) ERRED IN ESTIMATING THE PROFIT FROM HAWALA PURCHASES BY DISALLOWING ONLY RS.3,17,666/ - BEING 12.5% OF THE BOGUS PURCHASES AS EVEN THE BASIC ONUS OF PRODUCING DELIVERY CHALLANS, TRANSPORT BILLS ETC. WER E NOT FULFILLED BY THE ASSESSEE. (III) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. (IV) THE APPELLANT CRAVES TO LEAVE TO AMEND, MODIFY AND ALTER ANY GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THIS CASE. 2. BRIEFLY STATED, THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SUB ASSEMBLIES OF ELECTRICAL CONTROL PANELS HAD FILE D ITS RETURN OF INCOME FOR A.Y. 2009 - 10 ON 30.09.2009, DECLARING A TOTAL INCOME OF RS.45,32,400/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SEC. 147 OF THE ACT. 3. ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT(INV.), MUMBAI, IT WAS GATHERED BY THE A.O THAT THE ASSESSEE AS A BENEFICIARY HAD OBTAINED BOGUS PURCHASE BILLS AGGREGATING TO RS.25,41,328/ - FROM THE FOLLOWING PARTIES: SR.NO. TIN OF HAWALA SUPPLIER HAWALA PAN NAME OF THE HAWALA SUPPLIER AMOUNT (RS.) 1. 27210156439V ASVPS7822F JAIN TRADING CORPORATION 7,52,648/ - 2. 27540501626V AIIPR7361K MAHAVIR CORPORATION 8,11,191/ - 3. 27490547195V AAVPS1344J S.M. TRADING CO. 8,88,570/ - 4. 27240652044V AABPC3023G K.V. TRADING CO. 1,03,948/ - 5. 27250606497V CIMCO CORPORATION 1,01,119/ - 6. 27410543068V AMWPP9975F AMAN ENTERPRISES 3,83,852/ - TOTAL 25,41,328/ - IN ORDER TO VERIFY THE GENUINENESS AND VERACITY OF THE AFORESAID PURCHASE TRANSACTIONS , THE A.O DIRECTED THE ASSESSEE TO PRODUCE THE AFOREMENTIONED PARTIES FOR NECESSARY EXAMINATION ALONG WITH SUPPORTING DOCUMENTS. HOWEVER, THE ASSESSEE FAILED TO COMPLY WITH THE AFORESAID DIRECTION OF THE A.O AND DID NOT PRODUCE EITHER OF THE AF OREMENTIONED PARTIES. RATHER, I N ORDER TO IMPRESS UPON THE A.O THAT GENUINE PURCHASES WERE MADE FROM THE AFOREMENTIONED PARTIES THE ASSESSEE EMPHASISED ON THE FACT THAT THE PAYMENTS TO WARDS THE PURCHASE CONSIDERATION TO THE SAID PARTIES WAS MADE THROUGH AC COUNT PAYEE CHEQUES. ALSO, SUPPORT WAS DRAWN FROM THE FACT THAT THE PURCHASES UNDER CONSIDERATION WERE DULY SUPPORTED BY THE PURCHASE BILLS OF THE AFOREMENTIONED PARTIES. THE A.O IN ORDER TO VERIFY THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 3 ISSUED NOTIC ES UNDER SEC.133(6) TO THE ABOVEMENTIONED PARTIES, THEREIN CALLING UPON THEM TO FURNISH THE COPIES OF THE LEDGER ACCOUNT OF THE ASSESSEE AS APPEARING IN THEIR BOOKS OF ACCOUNT, DETAILS OF THE NATURE OF GOODS SOLD , SAMPLE COPIES OF THE BILLS ISSUED, COP IES OF THE DELIVERY CHALLANS, COPIES OF THE TRANSPORT BILLS AND THE BANK STATEMENTS EVIDENCING THE RECEIPT OF THE BALANCE OUTSTANDING AMOUNT AFTER THE YEAR END. HOWEVER, ALL THE AFORESAID NOTICES ISSUED BY THE A.O UNDER SEC. 133(6) WERE RETURNED UNSERVED BY TH E POSTAL AUTHORITIES. IN THE BACKDROP OF THE AFORESAID FACTS, THE A.O DIRECTED THE ASSESSEE TO PRODUCE THE AFOREMENTIONED PARTIES ALONG WITH SUPPORTING DOCUMENT S WHICH WOULD EVIDENCE THE GENUINENESS OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION. AS THE ASSESSEE NEITHER PRODUCE D THE AFOREMENTIONED PARTIES NOR PLACED ON RECORD THE SUPPORTING DOCUMENTARY EVIDENCE AS WAS CALLED FOR IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A.O HELD A CONVICTION THAT NO GENUINE PURCHASE WERE MADE BY THE ASSESSEE FROM T HE AFOREMENTIONED PARTIES. ON THE BASIS OF THE AFORESAID FACTS, THE A.O WAS OF THE VIEW THAT THE ASSESSEE HAD PROCURED THE GOODS FROM THE UNIDENTIFIED PARTIES OPERATING IN THE OPEN/GREY MARKET AND HAD ONLY OBTAINED BOGUS BILLS FROM THE AFOREMENTIONED PARTI ES IN ORDER TO AVOID DISALLOWANCE UNDER SEC. 40(A)(3) OF THE ACT. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE A.O ADDED THE PEAK CREDIT OF RS.11,30,363/ - STANDING IN THE NAMES OF THE AFOREMENTIONED BOGUS PARTIES AS UNEXPLAINED EXPENDITURE UNDER SEC.69C OF THE ACT . AS SUCH, THE A.O AFTER INTER ALIA MAKING THE AFORESAID ADDITION UNDER SEC.69C ASSESSED THE INCOME OF THE ASSESSEE AT RS.57,13,760/ - . 4. AGGRIEVE D, THE ASSESSEE ASSAILED THE ASSESSMENT ORDER BEFORE THE CIT(A). ON A PERUSAL OF THE FACTS, IT WAS OBSERVED BY THE CIT(A) THAT THE TOTAL PURCHASES OF THE RS.25,41,328/ - CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES COULD NOT BE HELD TO BE ENTIRELY BOGUS . ACCORDINGLY, THE CIT(A) WAS OF THE VIEW THAT THE PEAK OF THE CREDIT STANDING IN THE NAME S OF THE AFOREMENTIONED PARTIES COULD NOT HAVE BEEN ADDED TO THE RETURNED INCOME OF THE ASSESSEE. OBSERVING, THAT AS THE ASSESSEE COULD NOT S UBSTANTIATE THE AUTHENTICITY OF THE PURCHASE PRICE SHOWN ON THE INVOICES WHICH WERE PRODUCE D IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THEREFORE, THE CIT(A) WAS OF THE VIEW THAT IT COULD SAFELY BE CONCLUDED THAT THE CORRESPONDING PURCHASES CLAIMED BY TH E ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED BOGUS PARTIES WERE OVER INVOICED. AS SUCH, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAD PURCHASED THE GOODS NOT FROM THE AFOREMENTIONED PARTIES BUT FROM THE UNIDENTIFIED DEALERS OPERATING IN THE OPEN /GREY MARKET. ON THE BASIS OF HIS AFORESAID ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 4 OBSERVATIONS, THE CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF THE PROFIT ELEMENT OF 12.5% WHICH AS PER HIM THE ASSESSEE WOULD HAD GENERATED BY MAKING THE PURCHASES FROM THE UNDISCLOSED PARTIES OPERATING IN TH E OPEN/GREY MARKET. IN THE BACKDROP OF HIS AFORESAID DELIBERATIONS THE CIT(A) SCALED DOWN THE ADDITION TO AN AMOUNT OF RS.3,17,666/ - [ 12.5% AT RS.25,41,328/ - ] . 5. THE REVENUE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEF ORE US. WE FIND THAT THE ASSESSEE RESPONDENT DESPITE HAVING BEEN PUT TO NOTICE ABOUT THE HEARING OF THE APPEAL HAD FAILED TO PUT UP AN APPEARANCE BEFORE US. AS SUCH , WE ARE CONSTRAINED TO PROCEED WITH AND DISPOSE OFF THE APPEAL AS PER RULE 25 OF THE APPELL ATE TRIBUNAL RULES, 1963, AFTER HEARING THE APPELLANT REVENUE AND PERUSING THE ORDER S OF THE LOWER AUTHORITIES. THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) SUBMITTED THAT THE CIT(A) WAS IN ERROR IN SCALING DOWN THE DISALLOWANCE OF RS.11,30,363/ - MADE BY THE A.O UNDER SEC.69C TO AN ESTIMATED AMOUNT OF RS.3,17,666/ - . IN SUPPORT OF HIS AFORESAID CONTENTION, IT WAS SUBMITTED BY THE LD. D.R THAT AS THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE GENUINENESS AND VERACITY OF THE PURCHASE TRANSACTIONS, THERE FORE, THE A.O HAD IN ALL FAIRNESS RIGHTLY ADDED THE PEAK OF THE CREDIT STANDING IN THE NAME OF THE AFOREMENTIONED PARTIES UNDER SEC. 69C OF THE ACT. 6. WE HAVE HEARD THE LD. D.R AND ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ADMITTEDLY, THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE AUTHENTICITY OF THE AFORESAID PURCHASES TRANSACTIONS WHICH WERE CLAIMED BY HIM TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTIES. IN FACT, IN THE BACKDROP OF THE INFORMATION RECEIVED BY THE A.O FROM THE OFFICE OF THE D G IT(INV.), MUMBAI, WHEREIN IT WAS CONVEYED THAT THE ASSESSEE HAD NOT MADE ANY GENUINE PURCHASES FROM THE AFOREMENTIONED PARTIES, A VERY HEAVY ONUS WAS CAST UPON THE ASSESSEE TO DISPEL ALL DOUBT S IN RESPECT OF THE VERACITY OF THE AFORESAID PURCHASE TRANSACTION S. HOWEVER, WE FIND THAT THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS THAT WAS CAST UPON IT. AT THE SAME TIME, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE CIT(A) THAT AS THE CORRESPONDIN G SALES OF THE ASSESSEE HAD NOT BEEN DOUBTED OR DISLODGED, THEREFORE, THE ADDITION IN HIS HANDS WAS LIABLE TO BE RESTRICTED ONLY TO THE EXTENT OF THE PROFIT ELEMENT WHICH HE WOULD HAVE GENERATED BY MAKING OF SUCH PURCHASES FROM THE UNORGANISED SECTOR OPERA TING IN THE OPEN/GREY MARKET. ACCORDINGLY, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE ASSESSEE HAD NOT ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 5 MADE ANY GENUINE PURCHASES FROM THE AFOREMENTIONED PARTIES AND HAD PROCURED THE GOODS FROM THE OPEN/GREY MARKET. INSOFAR T HE QUANTIFICATION OF SUCH PROFIT ELEMENT IS CONCERNED, WE FIND THAT THE HONBLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX - 17 VS. M/S MOHHOMAD HAJI ADAM & COMPANY (ITA NO. 1004 OF 2016, DATED 11.02.2019) WHIL E UPHOLDING THE ORDER OF THE TRIBUNAL, HAD OBSERVED , THAT THE ADDITION IN THE HANDS OF THE ASSESSEE AS REGARDS THE BOGUS/UNPROVED PURCHASES WAS TO BE MADE TO THE EXTENT OF BRINGING THE G.P RATE OF SUCH PURCHASES AT THE SAME RATE AS THAT OF OTHER GENUINE PU RCHASES. THE HONBLE HIGH COURT WHILE CONCLUDING AS HEREINABOVE HAD OBSERVED AS U NDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE AO FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CON TENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEE'S ADDITIONAL INCOME OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DISCREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALE DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBIN G THE SALES IN CASE OF A TRADE. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF N.K. INDUSTRIES LTD. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER - SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,70,78,125 / - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE P UNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDUCE THE SELLING PRICE ACCORDIN GLY AS A RESULT OF WHICH PROFIT COMES TO 5.66% THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,1 25/ - WHICH COMES TO RS.20,98,62 1.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDI NGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. 9. IN THESE CIRCUMSTANCES, NO QUESTION OF LAW, THEREFORE, ARISES. ALL INCOME TAX APPEALS ARE DISMISSED, ACCORDINGLY. NO ORDER AT COSTS. AS SUCH, THE HONBLE JURISDICTIONAL HIGH COURT HAD OBSERVED THAT THE ADDITION IN RESPECT OF PURCHASES WHICH WERE FOUND TO BE BOGUS IN THE CASE OF THE ASSESSEE BEFORE THEM, WHO WAS A TRADER, WAS TO BE WORKED OUT BY BRINGING THE G.P. RATE OF SUCH BOGUS PURCH ASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. WE THUS RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT DIRECT THE A.O TO RESTRICT THE ADDITION INSOFAR THE BOGUS/UNPROVED PURCHASES AGGREGATING TO RS. 25,41,328/ - - IN THE CASE BEFOR E US ARE CONCERNED BY BRINGING THE G.P. RATE ITA NO.5695/MUM/2018 A.Y. 2009 - 10 ACIT - 27(3) VS. SHRI SANJAY B. PATNI 6 ON THE AMOUNT OF SUCH BOGUS PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. NEEDLESS TO SAY, THE ASSESSEE IN THE COURSE OF THE SET ASIDE PROCEEDINGS SHALL FURNISH THE REQUISITE DETAILS BEFORE THE A.O, WHO SHALL AFTER MAKING NECESSARY VERIFICATIONS RESTRICT THE ADDITION IN TERMS OF OUR AFORESAID OBSERVATIONS. THE ORDER PASSED BY THE CIT(A) IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE A.O TO GIVE EFFECT TO OUR AFORESAID DIRECTIONS. ORDER PRO NOUNCED IN THE OPEN COURT ON 08. 01.2020 SD/ - SD/ - ( MANOJ KUMAR AGGARWAL ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 08 .01.2020 PS. ROHIT / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI