ITO , WARD- 3 (3), KALYAN V. NIMESH S. DESAI, MUMBAI

ITA 6184/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0413 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C LALKA
• Keywords: Bogus purchase; Set aside
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6184/MUM/2018 ASSESSMENT YEAR: 2009 - 10 INCOME TAX OFFICER, WARD - 3(3), KALYAN. VS. SHRI NIMESH S DESAI, C/O M/S MAHENDRA H SHAH & CO., CAS, 12, SHIVAJI FORT CHS LTD., N S MANKIKAR MARG, SION (EAST), MUMBAI - 400022. PAN NO. AABPD8663R APPELLANT RESPONDENT REVENUE BY : SMT . JOTHILAKSHMI NAYAK , SR. DR ASSESSEE BY : SHRI G.C. LALKA, AR DATE OF H EARING : 27/11/2019 DATE OF PRONOUNCEMENT : 16/12/2019 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2009 - 10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, THANE [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REV ENUE READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN NOT APPRECIATING THE LAW CORRE CTLY THAT ONCE THE SHRI NIMESH S DESAI ITA NO. 6184/MUM/2018 2 PURCHASES ARE UNVERIFIABLE/NOT GENUINE/BOGUS, THE SAME SHOULD HAVE BEEN DISALLOWED IN ENTIRETY? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW BY NOT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE PURCHASES FROM THE NON - EXISTENT VENDORS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW BY NOT APPRECIATING THE FACT THAT THE ONUS TO JUSTIFY THE CLAIM OF EXPENSES IS ON T HE ASSESSEE AND THE SAME HAS F AILED TO DISCHARGE IT IN RELATION TO THE PURCHASE S MADE FROM THE NON - EXISTENT VENDORS? 4. WHETHER ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW BY IGNORING THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF PURCHASES FROM NON - EXISTENT VENDORS BY ME ANS OF RELEVANT SUPPORTING DOCUMENTS RELATED TO MOVEMENT AND DELIVERY OF GOODS, STOCK REGISTER, ETC. TO ARRIVE AT DISALLOWANCE AT 25% OF THE PURCHASES FROM THE NON - EXIGENT VENDORS? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN NOT APPRECIATING THE LAW CORRECTLY THAT ONCE THE PURCHASES ARE UNVERIFIABLE/ NOT GENUINE / BOGUS, THE SAME SHOULD HAVE BEEN DISALLOWED IN ENTIRETY, PARTICULARLY IN VIEW OF THE RATIO OF THE DECISION OF THE HON'BLE GUJARAT HIGH COU RT IN TAX APPEAL NO. 242 OF 2003 DATED 20/06/2016 IN THE CASE OF N K. PROTEINS LTD. AGAINST WHICH THE SLP WAS DISMISSED BY THE HON'BLE APEX COURT AND ALSO DECISION OF HON'BLE SUPREME COURT IN CASE OF KANCHWALA GEMS V/S JCIT 288 ITR 10 (SC)? 3. BRIEFLY STAT ED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2009 - 10 ON 27.09.2009 DECLARING TOTAL INCOME OF RS.1,71,280/ - . THE ASSESSEE IS A TRADER AND SUPPLIER OF ALL TYPES OF ENGINEERING GOODS, HARDWARE ITEMS, CABLES, PIPE FITTINGS, VALVE ETC. ON RECEIPT OF INFORMATION FROM THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA SHRI NIMESH S DESAI ITA NO. 6184/MUM/2018 3 THAT THE ASSESSEE HAD OBTAINED BOGUS PURCHASE BILLS AMOUNTING TO RS.6,10,365/ - FROM NINE PARTIES, THE ASSESSING OFFICER (AO) ISSUED NOTICE U/S 148 DATED 05.04.2013 TO RE - OPEN THE ASSESSMENT. IN RESPONSE TO IT, THE ASSESSEE SUBMITTED THAT THE ORIGINAL RETURN OF INCOME FILED ON 27.09.2009 BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. DURING THE COURSE OF RE - ASSESSMENT PRO CEEDINGS, THE AO ASKED THE ASSESSEE TO SUBMIT COPIES OF BILLS, TR ANSPORTATION AND OCTROI PAYMENT RECEIPTS IN RESPECT OF TRANSACTION MADE WITH THE ABOVE PARTIES DURING THE YEAR UNDER CONSIDERATION. IN RESPONSE TO IT, THE ASSESSEE FILED COPIES OF BILLS OF PU RCHASES FROM THOSE PARTIES, BUT STATED THAT THERE WAS NO TRANSPORT OR OCTROI BILLS AS THE PURCHASERS AND SELLERS ARE LOCAL AND AS SUCH THERE ARE NO TRANSPORT AND OCTROI CHARGES, THE SAME WAS HAND DELIVERED. THE AO OBSERVED THAT THE INQUIRY CONDUCTED BY THE INSPECTOR OF INCOME TAX INDICATED THAT THE SAID PARTIES WERE NOT THERE IN THE ADDRESS GIVEN. THEREFORE, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE AN ADDITION OF THE TOTAL AMOUNT OF RS.6,10,365/ - . 4. AGGRIEVED BY THE ORD ER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT VIDE ORDER DATED 16.08.2018, THE LD. CIT(A) EXAMINED THE COMPARATIVE DETAILS OF GROSS PROFIT/NET PROFIT OF THE ASSESSEE FOR YEARS IN WHICH HAWALA TRANSACTIONS WERE UNDERTAKEN I. E. PRECEDING TWO YEARS AND SUBSEQUENT TWO YEARS. HAVING EXAMINED THE SAME, HE OBSERVED THAT IN THE YEAR UNDER APPEAL, THE ASSESSEE HAS DECLARED GROSS PROFIT OF 11% AND THEREFORE, THE DISALLOWANCE OF HAWALA PURCHASES WILL LEAD TO ABNORMAL GROSS PROFIT OF 24 .31%, WHICH IS MUCH HIGHER THAN THAT OF NON - HAWALA YEARS. CONSIDERING THE FACTS OF THE CASE, THE LD. CIT(A) BY FOLLOWING THE ORDER OF THE SHRI NIMESH S DESAI ITA NO. 6184/MUM/2018 4 TRIBUNAL IN VIJAY PROTEINS LTD. V. ACIT 58 ITD 428, WHICH HAS BEEN SUBSEQUENTLY UPHELD BY THE HONBLE SUPREME COURT RE STRICTED THE DISALLOWANCE TO 25% OF RS.6,10,365/ - WHICH COMES TO RS.1,52,591/ - . THEREBY, THE LD. CIT(A) DELETED THE BALANCE DISALLOWANCE OF RS.4,57,774/ - (RS.6,10,365/ - MINUS RS.1,52,591/ - ). 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITS TH AT THE INQUIRY CONDUCTED BY THE INSPECTOR OF INCOME TAX HAS ESTABLISHED THAT NO BUSINESS ACTIVITIES ARE CARRIED OUT AT THE PREMISES OF THE HAWALA PARTIES IN THE ADDRESS GIVEN BY THE ASSESSEE. THUS IT IS STATED THAT IN VIEW OF THE DECISION IN N.K. PROTEINS LTD. (SUPRA) , THE ORDER OF THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO 25% OF THE DISPUTED PURCHASES OF RS.6,10,365/ - WHICH COMES TO RS.1,52,591/ - BE SET ASIDE AND THE ORDER OF THE AO MAKING A DISALLOWANCE OF THE TOTAL AMOUNT OF RS.6,10,365/ - BE RESTORED. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE FILES A COPY OF THE LEDGER ACCOUNT ALONG WITH PURCHASE BILLS OF THE CONCERNED PARTIES ALONG WITH COPY OF BANK STATEMENT REFLECTING THE SAID PAYMENTS, COPY OF VAT CHALLANS AND THE ORDER OF THE TRIBUNAL IN THE CA SE OF SUKESHAN EQUIPMENTS PVT. LTD . (ITA NO. 4924/M/2016). IT IS ALSO STATED BY HIM THAT THESE DOCUMENTS WERE FILED BEFORE THE AO AND CIT(A). THUS THE LD. COUNSEL SUBMITS THAT THE LD. CIT(A), HAVING CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS R IGHTLY RESTRICTED THE DISALLOWANCE TO 25% OF THE DISPUTED PURCHASES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF N.K PROTEINS LTD . (SUPRA), THERE WAS SEARCH PROCEEDINGS CONDUCTED BY THE REVENUE AT TH E OFFICE PREMISES OF THE ASSESSEE WHEREIN BLANK SIGNED CHEQUE BOOKS AND VOUCHER OF NUMBER OF CONCERNS WERE SHRI NIMESH S DESAI ITA NO. 6184/MUM/2018 5 FOUND. ACCORDINGLY, THE PURCHASES MADE FROM THESE CONCERNS WERE TREATED AS BOGUS BY THE AO AND THE ENTIRE DEPOSITS IN BANK ACCOUNTS OF THESE PARTIES WERE TREATED AS ASSESSEES INCOME ON PROTECTIVE BASIS. ON APPEAL, THE ITAT RESTRICTED THE ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES AT 25% I.E. RS.73,23,322/ - OF THE TOTAL PURCHASES AMOUNTING TO RS.2,92,93,288/ - . ON FURTHER APPEAL, THE HONBLE HIGH CO URT MODIFIED THE ORDER OF THE TRIBUNAL AND DIRECTED FOR ADDITION OF ENTIRE BOGUS PURCHASES. AFTER HEARING THE COUNSELS, THE HONBLE SUPREME COURT DISMISSED THE SLP FILED BY THE ASSESSEE AND CONFIRMED THE DECISION OF THE HIGH COURT FOR ADDITION OF ENTIRE IN COME ON ACCOUNT OF BOGUS PURCHASES. ON FACTS, THE INSTANT CASE IS DISTINGUISHABLE FROM THE DECISION IN N.K PROTEINS LTD . (SUPRA). IN THE INSTANT CASE, THE FACT REMAINS THAT THE ASSESSEE FILED BEFORE THE AO THE LEDGER ACCOUNTS ALONG WITH RELEVANT PURCHASE BILLS OF THE NINE SUPPLIERS FROM WHOM IT HAD PURCHASED AND THE SAME IS IN DISPUTE. THE ASSESSEE ALSO FILED BEFORE THE AO COPY OF BANK STATEMENT REFLECTING THE SAID PAYMENTS AND COPY OF VAT CHALLANS. IN SUCH A SITUATION, THE AO COULD HAVE MADE INQUIRIES TO ASCERTAIN THE GENUINENESS OF THE TRANSACTIONS. WE FIND THAT THE AO HAS NOT MADE ANY INQUIRY TO ASCERTAIN IT. THE AO HAS RELIED EXCLUSIVELY ON THE REPORT OF THE SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA AND ALSO THE FINDINGS OF THE INSPECTOR OF INCOME TAX. IN SUCH A SITUATION, THE DECISION IN THE CASE OF N.K. PROTEINS LTD. (SUPRA) RELIED ON BY THE LD. DR IS DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. HAVING STATED ABOVE THAT THE AO HAS NOT MADE ANY INQUIRY BEYOND THE REPORT OF THE SALES TAX D EPARTMENT, GOVERNMENT OF MAHARASHTRA AND THE FINDINGS OF THE INSPECTOR OF INCOME TAX, WE ARE OF THE CONSIDERED VIEW THAT THE SHRI NIMESH S DESAI ITA NO. 6184/MUM/2018 6 LD. CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE TO 25% OF THE DISPUTED PURCHASES OF RS.6,10,365/ - WHICH COMES TO RS.1,52,591/ - AN D DELETED THE BALANCE AMOUNT OF RS.4,57,774/ - . THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2019. S D/ - S D/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 16/12/2019 RAHUL SHARMA, SR. P.S. 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 . BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI