ALPA P. PAREKH, MUMBAI V. INCOME TAX OFFICER, WARD - 27(1), NAVI MUMBAI

ITA 5894/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0374 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 15-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Bogus purchase; Tangible material; Accommodation entries; Reason to believe
• Section: 69C; 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ./ I.T.A. NO. 5894/MUM/2017 ( / ASSESSMENT YEAR: 2009 - 10) ALPA P. PAREKH A/401, KRISHNA BLDG., VASANT SAGAR COMPLEX, THAKUR VILLAGE, KANDIVALI (E), MUMBAI - 400 101 / VS. I.T.O. WARD 27(1)(1) IT OFFICE, VASHI RAILWAY STATION BUILDING, NAVI MUMBAI ./ ./ PAN/GI R NO. AAFPP 8359 J ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MS. DINKLE HARIYA / RESPONDENT BY : MS. N. HEMALATHA / DATE OF HEARING : 16.11.2017 / DATE OF PRONOUNCEMENT : 05.02 .2018 / O R D E R PER S HAMIM YAHYA , A. M.: THIS A PPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 08.06.2017 AND PERTAINS TO THE A SSESSMENT YEAR 2009 - 10. 2 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO 2. THE ISSUE RAISED IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE REOPENING AND SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS.25,51,169/ - BEING APPROXIMATELY 25% OF THE ALLEGED BOGUS PURCHASE. 3. BRIEF FACTS OF THE CASE ARE T HAT THE ASSESSEE IS A PROPRIETOR OF M/S. NEW IMAGE SYSTEMS ENGAGED IN THE BUSINESS OF RESELLING OF LAB SCIENTIFIC & SURGICAL INSTRUMENTS. IN THIS CASE, THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 WAS E - FILED ON 29.09.2009 DECLARING TOTAL INCOME AT RS.4,78,480/ - . THE CASE WAS RE - OPENED ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT(INV.), MUMBAI W.R.T. THE BOGUS PURCHASES BY THE HAWALA DEALERS AS LISTED BY THE MAHARASHTRA SALES TAX DEPARTMENT AND THE REASSESSMENT U/S. 143(3) R.W.S. 147 OF THE AC T WAS COMPLETED ON 22.03.2015 DETERMINING THE TOTAL INCOME AT RS.30,29,650/ - BY MAKING ADDITION OF RS.25,51,169/ - ON ACCOUNT OF BOGUS PURCHASES U/S. 69C OF THE I. T. ACT, 1961. 4. THE ASSESSING OFFICER PROCEEDED TO DISALLOW THE PEAK OF THE CUMULATIVE OUTS TANDING OF THE ABOVE PARTY AMOUNTING TO RS.29,51,169/ - . 5. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING BOTH THE REOPENING AS WELL AS MERITS OF THE ADDITION. 6. THE LD. COMMISSIONER OF IN COME TAX (APPEALS) CONFIRMED THE VALIDITY OF REOPENING AND THE DISALLOWANCE ALSO . 3 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO 7. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 8. I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. AS REGARDS THE REOPENING OF THE ASSESSEE, ON A CAREFUL CONSIDERATION, I NOTE THAT IN THIS CASE INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER FROM DGIT INVESTIGATION (MUMBAI) THERE ARE SOME PARTIES WHO ARE ENGAGED IN THE HAWALA TRANSACTIONS AND ARE ALSO INVOLVED IN ISSUING BOGUS PURCHASE BILLS FOR SALE OF MATERIAL WITHOUT DELIVERY OF GOODS, WHICH INFORMATION WAS BASED ON INFORMATION RECEIVED BY REVENUE FROM MAHARASHTRA SALES TAX AUTHORITY. INFORMATION WAS RECEIVED THAT THE ASSESSEE WAS BENEFICIARY OF HAWALA ACCOMMODATION ENTRIES FROM ENTRY PROVIDERS BY WAY OF BOGUS PURCHASE. THE ACCOMMODATION ENTRY PROVIDER HAS DEPOSED AND ADMITTED BEFORE THE MAHARASHTRA SALES TAX AUTHORITY VIDE STATEMENT/ AFFIDAVIT THAT THEY WERE ENGAGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES WHEREIN BOGUS SALE BILLS WERE ISSUED W ITHOUT DELIVERY OF GOODS, IN CONSIDERATION FOR COMMISSION. THESE, ACCOMMODATION ENTRY PROVIDERS, ON RECEIPT OF CHEQUES FROM PARTIES AGAINST BOGUS BILLS FOR SALE OF MATERIAL, LATER ON WITHDREW CASH FROM THEIR BANK ACCOUNTS, WHICH WAS RETURNED TO BENEFICIARI ES OF BOGUS BILLS AFTER DEDUCTION OF THEIR AGREED COMMISSION. THE ASSESSEE WAS STATED TO BE ONE OF THE BENEFICIARIES OF THESE BOGUS ENTRIES OF SALE OF MATERIAL FROM HAWALA ENTRY OPERATORS IN FAVOUR OF THE ASSESSEE WHEREIN THE ASSESSEE MADE ALLEGED BOGUS PU RCHASES THROUGH THESE BOGUS BILLS ISSUED BY HAWALA ENTRY PROVIDERS IN FAVOUR OF THE ASSESSEE. THESE DEALERS WERE SURVEYED BY THE SALES TAX INVESTIGATION DEPARTMENT WHEREBY THE 4 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO DIRECTORS OF THESE DEALERS HAVE ADMITTED IN A DEPOSITION VIDE STATEMENTS/AFFIDAV IT MADE BEFORE THE SALES TAX DEPARTMENT THAT THEY WERE INVOLVED IN. ISSUING BOGUS PURCHASE BILLS WITHOUT DELIVERY OF ANY MATERIAL. THERE IS A LIST OF SUCH PARTIES WHEREIN THE ASSESSEE IS STATED TO BE BENEFICIARY OF BOGUS PURCHASE BILLS. 9. FROM THE ABO VE, I FIND THAT TANGIBLE AND COGENT INCRIMINATING MATERIAL WERE RECEIVED BY THE AO WHICH CLEARLY SHOWED THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM BOGUS ENTRY PROVIDERS WHICH FORMED THE REASON TO BELIEVE BY THE AO THAT INCOME HAS ESCA PED ASSESSMENT. THE INFORMATION SO RECEIVED BY THE AO HAS LIVE LINK WITH REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. ON THESE INCRIMINATING TANGIBLE MATERIAL INFORMATION, ASSESSMENT WAS REOPENED. AT THIS STAGE THERE HAS TO BE PRIMA FACIE BELIEF B ASED ON SOME TANGIBLE AND MATERIAL INFORMATION ABOUT ESCAPEMENT OF INCOME AND THE SAME IS NOT REQUIRED TO BE PROVED TO THE GUILT. IN THIS REGARD, I REFER TO THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT(A) VS. RAJESH JHAVERI STOCK BROKERS P. LT D, 291 ITR 500: - 'SECTION 147 AUTHORISES AND PERMITS THE ASSESSING OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO LAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE WORD 'REASON' IN THE PHRASE 'REASON TO BEL IEVE' WOULD MEAN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE (HAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REASON TO BELIEVE THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE READ TO MEAN THAT THE AO SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL STATUTE WITH SOLICITUDE FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPAYERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANAGNESE ORE CO, LTD. V. ITO(1991) 191 ITR 662, FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) 5 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS, 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 REQU ISITE BELIEF WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE AO IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION ITO V. SELECTED DALURBAND COAL CO, (P.) LTD. (1 996) 217 ITR 597 (SUPREME COURT): RAYMOND WOOLLEN MILLS LTD. V. ITO (1999) 236 ITR 34 (SUPREME COURT). 10. THE ABOVE DISCUSSION AND PRECEDENT FROM APEX COURT FULLY JUSTIFY THE VALIDITY OF REOPENING IN THIS CASE. FURTHER I FIND THAT THE LD. CIT(A) HAS CAR EFULLY EXAMINED THE ISSUE AND HAS PROPERLY APPRECIATED THE ISSUE. HENCE, I DO NOT FIND ANY INFIRMITY IN THE SAME. ACCORDINGLY, I UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE OF REOPENING. SINCE, THE ISSUE HAS BEEN DECIDED ON THE BASIS OF THE HONBLE AP EX COURT DECISION, THE OTHER CASE LAWS REFERRED BY ASSESSEE ARE NOT SUPPORTING THE ASSESSEES CASE. 11. AS REGARDS THE MERITS, I FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS. THE ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION ASS ESSMENT WAS REOPENED. THE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UN - ASSAILED. IN SUCH FACTUAL SCENARIO, THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE ISSUE 6 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO OF NOTICE TO ALL THE PARTIES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY CONFIRMATION FROM ANY OF THE PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NECESSARY EVIDENCE RELATING TO TRANSPORTATION OF THE GOODS WAS ALSO NOT ON RECORD. IN THIS FACTUAL SCENARIO, IT IS AMPLY CLEAR THAT THE ASSESSEE HAS OBTAINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDER OF THESE BILLS IS BOGUS AND NON - EXISTENT. 12. THE SALES TAX DEPARTMENT IN ITS ENQUIRY HAS FOUND THE PART IES TO BE PROVIDING BOGUS ACCOMMODATION ENTRIES. THE ASSESSING OFFICER ALSO ISSUED NOTICES TO THESE PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE. ALL THESE NOTICES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NEITH ER THE ASSESSEE HAS BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THESE PARTIES. IN SUCH CIRCUMSTANCES, THERE IS NO DOUBT THAT THESE PARTIES ARE NON - EXISTENT. WE FIND IT FURTHER STRANGE THAT ASSESSEE WANTS THE REVENUE TO PRODUCE ASSESSEES OWN VENDORS, WHOM T HE ASSESSEE COULD NOT PRODUCE. THE PURCHASE BILLS FROM THESE NON - EXISTENT/BOGUS PARTIES CANNOT BE TAKEN AS COGENT EVIDENCE OF PURCHASES. IN LIGHT OF THE OVERWHELMING EVIDENCE, THE REVENUE AUTHORITIES CANNOT PUT UPON BLINKERS AND ACCEPT THESE PURCHASES AS GENUINE. THIS PROPOSITION IS DULY SUPPORTED BY HONBLE APEX COURT DECISION IN THE CASE OF SUMATI DAYAL VS. CIT [1995] 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE [1971] 82 ITR 540 (SC). IN THE PRESENT CASE, THE ASSESSEE WANTS THAT THE 7 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO UNASSAILABLE FACT THAT THE SUPPLIERS ARE NON - EXISTENT AND, THUS, BOGUS SHOULD BE IGNORED AND ONLY THE DOCUMENTS BEING PRODUCED SHOULD BE CONSIDERED. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF HONBLE APEX COURT DECISIONS. 13. I FURTHER FIND THAT HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014) HAS UPHELD 100% ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN THE SALES HAVE NOT BEEN DOUBTED. HOWEVER, THE FACTS OF THAT CASE WERE DIFFERENT. F URTHERMORE, THE SALES IN THAT CASE WERE BASICALLY TO GOVERNMENT DEPARTMENTS. HENCE, THE RATIO FROM THIS DECISION IS NOT FULLY APPLICABLE ON THE FACTS OF THE CASE. 14. IN THESE CIRCUMSTANCES, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO HONBLE GUJARA T HIGH COURT DECISION IN THE CASE OF TAX APPEAL NO. 240 OF 2003 IN THE CASE OF N K INDUSTRIES VS. DY. CIT VIDE ORDER DATED 20.06.2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE AD DITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. IT WAS EXPOUNDED THAT WHEN PURCHASE BILLS HAVE BEEN FOUND TO BE BOGUS, 100% DISALLOWANCE WAS REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONG WITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APE X COURT VIDE ORDER DATED 16.1.2017. 15. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER REFERRED TO THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT JAIPUR VS SHRUTI GEMS IN ITA NO. 658 OF 2009. THE HONBLE HIGH COURT HAS REFERRED TO THE DECISION OF CIT J AIPUR VS. ADITYA GEMS, D. B. 8 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO IN ITA NO. 234 OF 2008 DATED 02.11.2016, WHEREIN THE HONBLE COURT HAD INTER ALIA HELD AS UNDER: 'CONSIDERING THE LAW DECLARED BY THE SUPREME COURT IN THE CASE OF VIJAY PROTEINS LTD. VS. COMMISSIONER OF INCOME TAX, SPECIAL LE AVE TO APPEAL (C) NO.8956/2015 DECIDED ON 06.04.2015 WHEREBY THE SUPREME COURT HAS DISMISSED THE SLP CONFIRMED THE ORDER DATED 09.12.2014 PASSED BY THE GUJARAT HIGH COURT AND OTHER DECISIONS OF THE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OILCAKE INDUST RIES VS. COMMISSIONER OF INCOME TAX (2009) 316 ITR 274 (GUJ) AND N.K. INDUSTRIES LTD. VS. DY. C.I.T., TAX APPEAL NO.240/2003 DECIDED ON 20.06.2016, THE PARTIES ARE BOUND BY THE PRINCIPLE OF LAW PRONOUNCED IN THE AFORESAID THREE JUDGMENTS. 16. UPON CAREF UL CONSIDERATION I FIND THAT SALES IN THESE CASES ARE NOT DOUBTED. WHEN SALES ARE NOT DOUBTED , 100% DISALLOWANCE FOR BOGUS PURCHASE IS NOT SUSTAINABLE AS PER THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT REFERRED HERE - IN - ABOVE. HOWEVER THE FACTS AN D CIRCUMSTANCES OF THE CASE INDICATE THAT ASSESSEE HAS ENGAGED INTO DEALINGS IN THE GREY MARKET. DEALINGS IN THE GREY MARKET GIVE THE ASSESSEE VARIOUS SAVINGS AT THE EXPENSE OF THE E XCHEQUER. HENCE , ON THE O VERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES AND FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT P. SHETH [2013] 356 ITR 451 (GUJ.) I HOLD THAT A DISALLOWANCE OF 12.5% OF THE BOGUS PURCHASE WOULD MEET THE END OF JUSTICE. ACCORDINGLY , I MODIFY THE ORDER'S OF AUTHORITIES BE LOW AND DIRECT THAT THE DISALLOWANCE IN THIS CASE SHOULD BE RESTRICTED TO 12.5% OF THE BOGUS PURCHASE . SINCE THE ISSUE HAS BEEN DECIDED KEEPING IN MIND THE HONBLE SUPREME COURT AND HONBLE HIGH COURT DECISION, THE DECISIONS OF TRIBUNAL REFERRED BY THE LD. COUNSEL OF THE ASSESSEE ARE NOT RELEVANT. 9 ITA NO. 5894/MUM/2017 (A.Y. 2009 - 10) ALPA P. PAREKH VS. ITO 17. IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STAND S PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 05.02.2018 SD/ - (S HAMIM YAHYA ) / A CCOUNTANT MEMBER MUMBAI ; DATED : 05.02.2018 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY ./ASSTT. REGISTRAR) , / ITAT, MUMBAI