DINESH BABULAL JAIN, MUMBAI V. ITO 19 (1)(4), MUMBAI

ITA 5771/MUM/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 8416 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R BOOPATHI
• Keywords: Bogus purchase; Search and seizure; Tangible material; Accommodation entries; Reason to believe; Reassessment proceedings; Set aside
• Section: 201; 148; 132

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. 5771/MUM/2018 ASSESSMENT Y EAR: 2009 - 10 DINESH BABULAL JAIN, 321, AMRUT DIAMOND HOUSE, TATA ROAD NO. 1, OPERA HOUSE, MUMBA I - 400004 PAN : AGVPJ0725E VS. THE ITO 19(1)(4), INCOME TAX OFFICE, MATRU MANDIR, NANA CHOWK, GRANT ROAD (WEST), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIMANSHU GANDHI (AR) REVENUE BY : SHRI R. BOOPATHI (D R) DATE OF HEARING: 30/09 /201 9 DATE OF PRONOUNCEMENT: 20 / 12 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 25.07.2018 PASSED BY THE COMMISSIONER OF INCOME TA X (APPEALS) - 3 0 (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 143 (3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR CONSIDERATION DECLARING TOTAL INCOME AT RS. 2,62,740/ - . THE RETURN WAS PROCESSED U/S 143 (1) OF T HE ACT. ACCORDINGLY, THE ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS. 3,10,040/ - . A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON SHRI BHANWARLAL JAIN & AND HIS GROUP CONCERN ON 03.10.2013 BY THE DGIT (INV.). DURING THE COURSE OF SEARCH 2 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 PROCEEDINGS, IT TRANSPIRED THAT SEVERAL NAME LENDING DUMMY DIRECTORS, PARTNERS/PROPRIETORS OF VARIOUS CONCERNS THROUGH WHICH ACCOMMODATION ENTRIES WERE PROVIDED FOR BOGUS SALES AND BOGUS UNSECURED LOANS. IT WAS FURTHER NOTICED THAT THESE C ONCERNS WERE BEING OPERATED AND MANAGED BY SHRI BHANWARLAL JAIN AND HIS FAMILY. THE ASSESSMENT WAS ACCORDINGLY REOPENED U/S 147 OF THE ACT AFTER ISSUING NOTICE U/S 148 OF THE ACT. IN RESPONSE TO T HE AO ISSUED NOTICE U/S 142 (1) AND 143 (2) OF THE ACT , THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE DETAILS CALLED FOR. SINCE IT WAS NOTICED THAT THE ASSESSEE HAD TAKEN ACCOMMODATION ENTRIES FROM BOGUS ENTITIES PROFICIENT INFRACTION PVT. AMOUNTING TO RS . 3,75,365/ - , MAULI GEMS AMOUNTING TO RS. 50,20,958/ - AND NAMAN EXPORTS AMOUNTING TO RS. 2,90,63,494/ - , THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THESE TRANSACTIONS SHOULD NOT BE TREATED AS BOGUS. THE ASSESSEE PLEADED THAT IT HAD MADE GENUI NE PURCHASES . THE ASSESSEE ALSO FURNISHED CERTAIN DETAILS IN SUPPORT OF ITS CONTENTION. HOWEVER, THE AO BASED HIS FINDINGS ON THE INVESTIGATION MADE BY THE DEPARTMENT AND ESTIMATED THE PROFIT OF 8% ON THE QUESTIONED PURCHASES AND MADE ADDITION OF RS. 27,56 ,785/ - TO THE INCOME OF THE ASSESSEE. IN THE FIRST APPEAL, THE LD. CIT(A) RESTRICTED THE ADDITION TO 3% OF THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED DURING THE REASSESSMENT PROCEEDINGS. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3 . THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) ON THE FOLLOWING EFFECTIVE GROUND S : - 1 ON THE FAC TS AND CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT (A) ERRED IN CONFIRMING PROCEEDING U/S 148 OF INCOME TAX ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 10,33,795/ - BEING 3% OF SUSPICIOUS PURCHASES OF RS. 3,44,59,817/ - ASSUMED BY THE LD. AO. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE LD. CIT (A) HAS WRONGLY SUSTAINED THE ADDITION TO 3% AMOUNTING TO RS. 10,33,795/ - AS THE 3 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 ASSESSEE HAS FURNISHED THE CHART SHOWING THE PARTICULARS OF PURCHASES FROM THE CONCERNED PARTIES WITH COPIES OF RETAIL INVOICES . THE ASSESSEE HAS FURTHER PLACED ON RECORD THE COPIES OF BANK STATEMENTS AND OTHER DOCUMENTS TO PROVE THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS . THE ASSESSEE HAS ALSO FILED THE COPIES OF RETURN OF INCOME, BALANCE SHEET, LEDGER CONFIRMATION OF THE CONCERNED PARTIES. THE LD. COUNSEL FURTHER CONTENDED THAT THE SALES ARE FULLY VOUCHED AND THE AO HAS NOT REJECTED THE SALES. MOREOVER, THE ASSESSEE HAS ALSO FURNISHED THE COPIES OF EXPORT INVOICES AND SUPPORTING DOCUMENTS TO PROVE THAT THE GOODS PURCHASED WERE EXPORTED. THE LD. COUNSEL FUR THER POINTED OUT THAT THE AO HAS NOT CONDUCTED ANY ENQUIRY IN ORDER TO ASCERTAIN THE GENUINENESS OF THE INFORMATION RECEIVED BY HIM RATHER BASED HIS FINDINGS ON THE REPORT OF INVESTIGATION CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTMENT. THE LD. COUN SEL FURTHER SUBMITTED THAT NO INCRIMINATING MATERIAL WAS RECOVERED FROM THE POSSESSION OF THE ASSESSEE. THE COPIES OF STATEMENT RELIED UPON BY THE AO WERE NOT SUPPLIED TO THE ASSESSEE AND THE ASSESSEE WAS NOT GIVEN OPPORTUNITY TO CROSS - EXAMINE THE WITNESSE S. IN VIEW OF THE AFORESAID FACTS THE LD. COUNSEL SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT(A) MAY BE SET ASIDE AND THE ADDITION SUSTAINED MAY BE DELETED. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTING THE ORDER PASSED BY TH E LD. CIT(A) SUBMITTED THAT DURING THE COURSE OF SEARCH, THE DUMMY DIRECTORS/PARTNERS/PROPRIETORS OF VARIOUS CONCERNS ADMITTED THAT THEY W ERE MADE DIRECTORS/PARTNERS AND PROPRIETORS AS PER THE DIRECTION S OF BANWARLAL JAIN AND FAMILY WHICH WERE CONTROLLED A ND MANAGED BY BANWARLAL . DURING THE COURSE OF SEARCH, BLANK CHEQUE BOOKS SIGNED BY DUMMY DIRECTORS, PARTNERS AND PROPRIETORS WERE FOUND FROM THE WORKPLACE OF THESE ENTITIES AND AS PER THE STATEMENT OF THE EMPLOYEES THESE DIRECTORS/PARTNERS AND PROPRIETORS USED TO SIGN BLANK CHEQUES AS PER THE DIRECTIONS OF BANWARLAL JAIN. THE BANK ACCOUNTS OF ALL THE CONCERNS WERE BEING MANAGED AND CONTROLLED BY BANWARLAL JAIN AND THE BOOKS OF ACCOUNTS WERE ALSO MAINTAINED AS PER THE DIRECTIONS OF BANWARLAL JAIN . MR. BANWAR LAL JAIN HAS ADMITTED IN HIS STATEMENT RECORDED U/S 132 (4) OF THE ACT THAT HE USED TO MANAGE AND CONTROL THE BUSINESS AFFAIRS 4 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 OF ALL THE CONCERNS IN WHICH THE PERSONS, WHO WERE HIS EMPLOYEES ARE SHOWN AS DIRECTORS/PARTNERS AND PROPRIETORS . SINCE, THE ASSE SSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF TRANSACTION; THE LD. CIT (A) HAS RIGHTLY SUSTAINED THE ADDITION TO A REASONABLE PERCENTAGE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE AUTHORITIES BELOW IN THE LIGHT OF THE RIVAL CONTENTIONS . THE LD. CIT (A) HAS UPHELD REOPENING OF THE ASSESSMENT U/S 147 R.W.S. 148 OF THE ACT HOLDING THAT THE AO HAD REASON TO BELIEVE THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. AS POI NTED OUT BY THE LD CIT(A), THE EXPRESSION REASON TO BELIEVE CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT . THE ONLY REQUIREMENT IS THAT THE AO SHOULD HAVE TANGIBLE MATERIAL BEFORE HIM FOR FORMING A BELIEF THAT THE INCOME OF AS SESSEE HAS ESCAPED ASSESSMENT. IN OUR CONSIDERED VIEW, THE MATERIAL AVAILABLE BEFORE THE AO I.E., THE REPORT OF IN INVESTIGATION WING OF THE DEPARTMENT, WAS SUFFICIENT FOR ISSUING NOTICE U/S 148 OF THE ACT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE FINDIN GS OF THE LD. CIT (A). WE THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT(A). 7. SO FAR AS THE ADDITION IS CONCERNED, THE LD. CIT (A) HAS RESTRICTED THE ADDITION TO 3% OF THE TOTAL AMOUNT OF THE QUESTIONED PURCHASES AFTER COMING TO THE CONCLUSION THAT THE AS SESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF THE TRANSACTION TO THE SATISFACTION OF THE AO. T HE LD. CIT (A) RESTRICTED THE ADDITION TO 3% KEEPING IN VIEW THE RATE OF VAT APPLICABLE AND THE RECOMMENDATION OF THE TASKFORCE GROUP FOR DIAMOND INDUSTRY CON STITUTED BY THE GOVT. OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY. THE OPERATIVE PART OF THE ORDER OF THE LD. CIT (A) READS AS UNDER: - 7.12 AS NARRATED EARLIER, THE LD. AO, IN THIS CASE HAS HIMSELF HELD THAT THE PURCHASES WERE NOT BOGUS THOUGH THE P ARTY FROM WHOM THE PURCHASES WERE MADE BY THE APPELLANT WAS FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH AO CONSIDERED THE ADDITION ON THE BASIS OF THE PROFIT ELEMENT EMBEDDED ON SUCH PURCHASES WHICH IS ESTIMATED @ 8% OF THE TOTAL PURCHASES. THE MOT IVE BEHIND OBTAINING BOGUS BILLS THUS, APPEARS TO BE INFLATION OF PURCHASES PRICE SO AS TO SUPPRESS TRUE 5 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 PROFITS. CONSIDERING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CASE LAWS CITED (SUPRA) ESPECIALLY IN THE CASE OF CIT VS. SIMIT P. SHETH (SUPRA), I A GREE WITH THE ACTION OF THE AO ESTIMATING THE ADDITION ON THE PROFIT ELEMENT EMBEDDED ON SUCH BOGUS PURCHASES. 7.13 HOWEVER, AO ESTIMATED THE PROFIT MARGIN @ 8% AND THE REASONS GIVEN ARE THAT, MOST OF THE TRADERS IN THE MARKET ACTUALLY OPERATE AT THIS LEVE L OF MARGIN IN THE OPEN MARKET, THIS FACT WAS IDENTIFIED BY THE GOI INTRODUCING THE BENIGN ASSESSMENT PROCEDURE (BAP) FOR THE ASSESSEE WHO ARE INTO MANUFACTURING AND / OR TRADING OF DIAMONDS. BAP WAS TO BE APPLICABLE FOR THOSE DIAMOND MERCHANTS, WHO WERE S HOWING A PROFIT MARGIN OF 8% OF THEIR TURNOVER. ALTHOUGH, THIS BAP TALKS ABOUT THE NET PROFIT MARGIN (NP), FOR A PETTY DEALER, OPERATING WITHOUT ANY ESTABLISHMENT, THE GP WOULD BE ALMOST SIMILAR TO NP. HENCE, IT WAS ASSUMED THAT THE MARGIN THAT IS NOW BEIN G ADOPTED FOR PURCHASES MADE IN CASH FROM THE GREY MARKET AND FOR WHICH THE BILLS ARE PROCURED FROM THE BHANWARLAL JAIN GROUP CONCERNS. THOUGH I AM IN AGREEMENT WITH THE REASONING OF THE AO FOR ESTIMATING THE PROFIT PERCENTAGE, I FEEL THAT THE AO HAS NOT GIVEN THE CORRECT REASONING FOR ESTIMATION OF THE PROFIT PERCENTAGE @ 8% IN THIS NATURE OF TRADE. WHILE DECIDING THE PROFIT ELEMENT EMBEDDED IN THE BOGUS PURCHASE CASES, GUJARAT HIGH COURT ADOPTED THE PROFIT @ 12.5% BY TAKING THE BENEFIT DERIVED OUT OF THE SAVING OF TAXES, CONSIDERING THE PROFIT MARGIN IN THAT LINE OF TRADE. IN THE LIGHT OF THE ABOVE, ONE HAS TO SEE IN THE PRESENT CASE, WHO ARE IN THE MANUFACTURING AND TRADING OF DIAMONDS, THE PROFIT ELEMENT EMBEDDED ESTIMATION @ 8% IS CORRECT OR NOT. IN DI AMOND TRADE THE RATE OF VAT IS STATED TO BE 1% AND IN SOME PLACE LIKE SURAT THE SAME IS FULLY EXEMPT. COMING TO THE PROFIT MARGIN IN THE TRADE, THE TASKFORCE GROUP FOR DIAMOND INDUSTRY CONSTITUTED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUST RY, AFTER CONSIDERING THE BAP SCHEME, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @ 2% OF TRADING ACTIVITY AND @ 3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. IT IS ALSO ASCERTAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP WING IS CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%. 7.14 HENCE, THE TASK ON HAND IS TO ASCERTAIN THE ADDITIONAL GP, WHICH THE APPELLANT MUST HAVE EARNED BY PURCHASING THE 6 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 DIAMONDS FROM THE GREY MARKET, THAN FROM THE REGULAR D EALER. THIS WOULD BE THE MARGIN WHICH THE PETTY TRADER IN THE GREY MARKET OFFERS OVER THE GENUINE TRADER. 7.15 TAKING INTO CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD, IF THE PERCENTAGE FOR TH IS YEAR IS ADOPTED @ 3% OVER AND ABOVE THE PERCENTAGE ALREADY ADMITTED FOR THE REASONS STATED ABOVE, THAT WILL MEETS THE END OF JUSTICE. IN VIEW OF THE ABOVE, AO IS DIRECTED TO RESTRICT THE ADDITION @ 3% ON THE PURCHASES OF RS. 50,99,978/ - , AS THE PROFIT E LEMENT EMBEDDED. ACCORDINGLY, THE ISSUE RAISED IN THE GROUNDS NO. 3, 4 , 5 AND 7 ARE TREATED AS PARTLY ALLOWED. 8. WE NOTICE THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS OF TRANSACTION IN QUESTION BEFORE THE AUTHORITIES BELOW BY ADDUCING COGENT AND CONVINCING EVIDENCE. THOUGH THE AO HAS NOT MADE ANY DETAILED ENQUIRY TO ASCERTAIN THE GENUINENESS OF THE TRANSACTION, HOWEVER , WE ARE OF THE CONSIDERED VIEW THAT THE EVIDENCE ON RECORD IS NOT SUFFICIENT TO HOLD THAT THE ASSESSEE HAD PURCHASED TH E GOODS IN QUESTION FROM THE PARTIES MENTIONED IN ITS BOOKS OF ACCOUNT. SINCE THE AO HAS NOT DISPUTED THE SALES MADE BY THE ASSESSEE, IT CAN BE CONCLUDED THAT THE ASSESSEE HAD PURCHASED THE GOODS IN QUESTION FROM SOME OTHER SOURCES WITHOUT PAYING THE APPLI CABLE TAXES. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P SETH 38 TAXMANN.COM 385 (GUJ) HAS UPHELD THE FINDINGS OF THE ITAT THAT IN CASE OF SUCH TRANSACTIONS, THE ELEMENT OF PROFIT EMBEDDED IN THE TRANSACTION SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. IN THE PRESENT CASE, T HE LD. CIT (A) HAS RESTRICTED THE ADDITION TO 3% KEEPING IN VIEW THE RATE OF VAT APPLICABLE DURING THE RELEVANT PERIOD AND THE RECOMMENDATIONS OF TASKFORCE , REFERRED ABOVE. HENCE, IN OUR CONSIDERED OPINION, THE FINDIN GS OF THE LD. CIT (A) ARE BASED ON THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE DISCUSSED ABOVE. WE ARE THEREFORE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY ESTIMATED THE PROFIT MARGIN ( INCLUDING VAT ) TO 3% OF THE TOTAL AMOU NT OF THE QUESTIONED PURCHASES . WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH 7 ITA NO. 5771 / MUM/2018 ASSESSMENT YEAR: 2009 - 10 THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS BOTH THE GROUNDS OF APPEAL OF THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 2 010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER , 2019 . SD/ - SD/ - ( G. MANJUNATHA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 20 / 1 2 / 201 9 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE AP PELLANT 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