SHRI RAMESH L. JAIN (HUF), MUMBAI V. INCOME TAX OFFICER-19(3)(1), MUMBAI

ITA 5856/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6049 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 11-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Rejection of books of accounts; Question of law; Tangible material; Accommodation entries; Reason to believe
• Section: 143(3); 143(1); 201; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER IT A. NO. 5856 /MUM/201 8 (A.Y: 20 09 - 10) SHRI RAMESH L. JAIN (HUF) PROP. M/S. RAMDEV IMPEX, 138/30 3 RD KUMBHARWADA LANE MUMBAI 400 004 PA N: AAJHR8745Q V. INCOME TAX OFFICER - 19 (3)(1 ) ROOM NO. 2 02, MATRU MANDIR TARDEV ROAD, MUMBAI 400 007 (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SMT JOTHILAKSHMI NAYAK DATE OF HEARING : 24.09.2019 DATE OF PRONOUNCEMENT : 24 .09 .2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) 30 , MUMBAI [HEREINAFTER IN SHORT LD. CIT(A)] DATED 06.07 .2018 FOR THE A.Y. 2009 - 10 . 2. ASSESSEE HAS RAISED SEVERAL GROUNDS IN HIS APPEAL . GROUND NO.1 IS IN RESPECT OF SUSTAINING THE REOPENING OF ASSESSMENT U/S. 147 OF THE ACT AND ALL OTHER GROUNDS ON MERITS IN ESTIMATING THE PROFIT ELEMENT O N ALLEGED BOGUS PURCHASES @12.5%. 2 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) 3. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RESELLER IN FERROUS AND NON FERROUS METALS , FILED RETURN OF INCOME ON 27.08.2009 FOR THE A.Y. 2009 - 10 DECLARING INCOME OF . 5,01,330/ - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEAL ERS. THE ASSESSMENT WAS REOPENED BASED ON THE INFORMATION RECEIVED FROM DGIT (INV.), MUMBAI, THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES FROM VARIOUS DEALERS WHO ARE ALL PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOO DS. IN THE RE - ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM VARIOUS PARTIES WHICH WERE REFERRED TO IN THE ASSESSMENT ORDER. THE ASSESSEE PRODUCED COPIES OF BILLS, BANK STATEMENT S, COPIES OF VAT CHALLANS, LEDGER COPIES AND SUBMITTED THAT TH E PURCHASES MADE ARE GENUINE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTAT ION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE PURCHASES IN THE GRAY MARKET. IT IS THE FINDING OF THE ASSESSING OFFICER SINCE THE PURCHASES MADE BY THE 3 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) ASSESSEE FROM THE ABOVE PARTIES AND CLAIMED AS EXPENSES IN HIS PROFIT AND LOSS ACCOUNT ARE NOT GENUINE , THE PURCHASES TO THAT EXTENT REMAINED UNVERIFIABLE. THEREFORE , HE REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED THE PROFIT ELEMENT AT 25 % FROM SUCH PURCHASES TREATED AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL THE LD.CIT(A) UPH ELD THE REOPENING OF THE ASSESSMENT. HOWEVER, COMING TO THE MERITS HE RESTRICTED THE DISALLOWANCE TO THE EXTENT 12.5% OF THE NON - GENUINE PURCHASES . 5. INSPITE OF ISSUE OF NOTICE NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT BY THE AS SESSEE. THEREFORE, WE PROCEED TO DISPOSE OFF TH IS APPEAL ON HEARING THE LD. DR ON MERITS . 6. LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD.CIT(A). 7. WE HAVE HEARD LD. DR, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN S O FAR AS THE REOPENING OF ASSESSMENT IS CONCERNED , WE NOTICED THAT LD.CIT(A) SUSTAINED THE REOPENING OF ASSESSMENT MADE BY THE ASSESSING OFFICER FOLLOWING THE ORDER OF THE HON'BLE SUPREME COURT IN THE CASE OF A CIT V . RAJESH JHAVERI STOCK BROKERS (P) LTD. [291 ITR 500] OBSERVING AS UNDER: - 4 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) 8 . THE GROUND NO. 6 IS AGAINST THE REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. IT IS STATED IN THE AO HAS NOT ACQUIRED THE JURISDICTION. 8.1. THE SUBMISSIONS MADE IN THE GROUND AND IN THE WRITTEN SUBMISSIONS BY THE APPELLANT ARE CAREFULLY EXAMINED WITH REFERENCE TO THE FACTS OF THE CASE AND MATERIAL PLACED ON RECORD. IT IS SETTLED LEGAL POSITION THAT IN A CASE WHERE THERE WAS NO ASSESSMENT OR RE - ASSESSMENT PRIOR TO REOPENING OF ASSESSMENT, EVEN IF ALL THE MATERIAL FACTS ARE DISCLOSED IN THE RETURN OF INCOME ALREADY FILED, REOPENING CAN BE INITIATED, IF THE ASSESSING OFFICER HAS 'REASON TO BELIEVE' THAT THE INCOME HAS ESCAPED ASSESSMENT. THE ASSES SEE IN SUCH CASES CANNOT ASSAIL THE REOPENING ON THE GROUND THAT THE FACTS WERE ALREADY PLACED ON RECORD AND THAT THE ASSESSING OFFICER OUGHT TO HAVE CONSIDERED THE FACTS. HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) LTD. (291 ITR 500) OBSERVED THAT THE WORD 'REASON' IN THE EXPRESSION 'REASON TO BELIEVE' WOULD MEAN CAUSE OR JUSTIFICATION AND IF THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REAS ONS TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. IT IS FURTHER OBSERVED BY THE SUPREME COURT THAT THE EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. AT THE INITIATION STAGE, WHAT IS REQUIRED IS 'REASON TO BELIEVE', BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELI EF THAT INCOME HAS ESCAPED ASSESSMENT. IN THE PRESENT CASE, IT IS EVIDENT FROM THE REASONS RECORDED AS REPRODUCED IN THE STATEMENT OF FACTS BY THE APPELLANT THAT THE AO HAS RECEIVED SPECIFIC AND CREDIBLE INFORMATION FROM THE DGIT(INV.), MUMBAI THAT THE ASS ESSEE WAS INVOLVED IN MAKING BOGUS PURCHASES THROUGH HAWALA DEALERS TO THE EXTENT OF RS. 3,07,72,603/ - . THE INFORMATION PRIMA FACIE REVEALED THAT THE APPELLANT HAS CLAIMED PURCHASES FOR THE A.Y. 2009 - 10 IN THEIR BOOKS. BASED ON THIS PRECISE INFORMATION, TH E AO ISSUED NOTICE U/S. 148 OF THE IT. ACT AS HE HAD PRIMA - FACIE REASONS TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SEC. 147 OF THE IT. ACT. THUS, THERE WAS CAUSE OR JUSTIFICATION FOR THE AO TO INVOKE PROVISIONS O F SEC. 147 AND ISSUE NOTICE U/S. 148. AS ALREADY MENTIONED, AT THE INITIATION STAGE, WHAT IS REQUIRED TO BE SEEN IS WHETHER THERE ARE PRIMA - FACIE 'REASONS TO BELIEVE' BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. THE AO ALSO RECORDED PROPER REASONS FOR FORMATION OF THE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. IT IS ALSO IMPORTANT TO NOTE THAT THE INFORMATION RELATING TO HAWALA OPERATORS WAS ALSO MADE AVAILABLE IN PUBLIC DOMAIN I.E. IN THE OFFICIAL WEBSITE OF THE MAHARASHTRA SALES TAX DEPARTMENT AN D THEREFORE THE REASONS FOR REOPENING THE ASSESSMENT ARE NOT BASED ON MERE SUSPICION. IN THE ASSESSMENT ORDER THERE IS NO MENTION THAT NOTICE IS BEING ISSUED 5 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) AFTER OBTAINING THE NECESSARY SATISFACTION OF COMMISSIONER OF INCOME TAX. THUS, ALL THE CONDITIONS NECESSARY FOR REOPENING OF THE ASSESSMENT UNDER THE PROVISIONS OF SEC. 147 AND FOR ISSUE OF NOTICE U/S. 148 ARE SATISFIED IN THE CASE OF THE APPELLANT FOR THE YEAR UNDER APPEAL. FOR THE FOREGOING REASONS, IT IS HELD THAT REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE ACT WAS DONE PROPERLY FOLLOWING THE DUE PROCEDURES LAID DOWN BY THE LAW AND THERE IS NO INFIRMITY OR ILLEGALITY IN REOPENING THE ASSESSMENT AND THE NOTICE ISSUED U/S. 148 FOR THE YEAR UNDER CONSIDERATION IS PERFECTLY LEGAL AND VALID. RES ULTANTLY, GROUND NO. 6 THE GROUND RELATING TO THE REOPENING AND PASSING OF ORDER U/S 143(3) R.W.S. 147 OF THE ACT ARE 'DISMISSED' . 8. AS COULD BE SEEN FROM THE ABOVE, SINCE THE ASSESSMENT WAS REOPENED BASED ON TANGIBLE MATERIALS AND INFORMATION COMING INTO THE POSSESSION OF THE ASSESSING OFFICER AT A LATER STAGE, WE HOLD THAT THE REOPENING OF ASSESSMENT U/S 147 OF THE ACT IS VALID AND WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A). HENCE THE GROUND RAISED BY THE ASSESSEE AGAINST REOPENING OF ASSESSMENT IS DISMISSED. 9. COMING TO THE MERITS OF THE CASE, ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), WE FIND THAT T HE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORAT ELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS IN THE ASSESSMENT ORDER AND FOLLOWING THE ORDER OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SHETH [356 ITR 451] RESTRICTED THE DISALLOWANCE TO 12.5% OF THE NON - GENUINE PURCHASES, WHILE HOLDING SO, THE LD.CIT(A) OBSERVED AS UNDER: - 6.6 LD. AO ADDED AN AMOUNT RS. 76,93,151/ - , BEING 25% OF THE TOTAL NON - GENUINE PURCHASES OF RS. 3,07,72,603/ - TO THE TOTAL INCOME OF THE ASSESSEE. THUS, THE ISSUE WOULD BOIL DOWN WHETHER THE 6 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) ELEMENT OF PROFIT ADOPTED BY THE AO @25% TREATING THE SAME AS THE PROFIT ELEMENT EMBE DDED IN SUCH BOGUS PURCHASES, WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITIES IS CORRECT OR NOT. 6.7 HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 356 ITR 451 (GUJ), HON'BLE COURT WAS SEIZED WITH THE SIMILAR ISSUE WHER E THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE AO, IN THAT CASE ADDED THE ENTIRE AMOUNT OF P URCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT (A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTY BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWE VER, SUSTAINED THE ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFI T ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLUSION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CASE OF VIJAY M. MISTRY CONST RUCTION LTD. 355 ITR 498 (GUJ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, ITAT IN THE CASE OF VIJAY PROTEINS 58 ITD 428. 6.8 HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 451 (GUJ), UPHELD THE DECISION OF THE ITAT, WHI CH CONFIRMED THE ADDITION @12.5% OF THE TOTAL BOGUS PURCHASE. TAKING INTO ACCOUNT THE FACTS OF THE CASE, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS , ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. 6.9 THE APPELLANT MADE PURCHASES FROM 25 PARTIES WHO ARE SAID TO BE HAWALA OPERATORS, WHO IS INDULGED IN P ROVIDING BOGUS BILLS WITHOUT SUPPLY OF ANY MATERIAL. INDEPENDENT INQUIRIES CONDUCTED REVEALED THAT NO SUCH PARTY IS EXISTING IN THE GIVEN ADDRESS. WHEN ASKED TO PRODUCE THE PARTY DURING THE ASSESSMENT PROCEEDINGS BY THE AO, APPELLANT EXPRESSED HIS INABILIT Y TO DO SO. IN THE PRESENT CASE, A.O. ESTIMATED THE PROFIT PERCENTAGE ON BOGUS PURCHASES AS 25%. THE SIMPLE ISSUE TO BE DECIDED IS WHETHER THE PERCENTAGE ADOPTED BY THE AO IS CORRECT IN THE LINE OF BUSINESS I.E. TRADING IN FERROUS AND NON - FERROUS METALS. A S NOTICED ABOVE, IN THE SIMILAR CIRCUMSTANCES OF BOGUS PURCHASES, HON'BLE GUJARAT HIGH COURT ESTIMATED THE ADDITIONAL ADVANTAGE TOWARDS TAX BENEFIT AT 12.5%. ACCORDINGLY, THE ADDITION MADE BY AO IS RESTRICTED TO 12.5% OF THE 7 ITA.NO.5856/MUM/2018 (A.Y: 2009 - 10) SHRI RAMESH L. JAIN (HUF) NON - GENUINE PURCHASES OF RS.3,0 7,72,603/ - . APPEAL ON GROUNDS NO. 1 TO 4 ARE TREATED AS 'PARTLY ALLOWED' 10. NONE OF THE FINDINGS AND OBSERVATIONS OF THE LD.CIT(A) HAVE BEEN REBUTTED WITH EVIDENCES BY THE ASSESSEE AND THUS WE DO NOT SEE ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN R ESTRICTING THE DISALLOWANCE TO 12.5% OF THE NON - GENUINE PURCHASES . 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH SEPTEMBER, 201 9 SD/ - SD/ - ( N.K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 24 / 0 9 / 2019 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM