INDO UNIQUE TRADING P.LTD, MUMBAI V. DCIT 5(2)(1), MUMBAI

ITA 6341/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0351 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 27-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: R K SINHA
• Keywords: Reopening of assessment; Bogus purchase; Accommodation entries; Onus to prove
• Section: 143(3); 133(6); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 6341 /MUM/20 16 (ASSESSMENT YEAR 20 07 - 08 ) INDO UNIQUE TRADING PVT. LTD. 401, MEHTA MAHAL, 4 TH FLOOR MATHEW ROAD, OPERA HOUSE MUMBAI - 40 0 004. VS. DCIT 5(2)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 6721/MUM/2016 (ASSESSMENT YEAR 2007 - 08) DCIT 5(2)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020. VS. INDO UNIQUE TRADING PVT. LTD. 401, MEHTA MAHAL, 4 TH FLOOR MATHEW ROAD, OPERA HOUSE MUMBAI - 400 004. ( APPELLANT ) ( RESPONDENT ) PAN NO . AABCI5898Q ASSESSEE BY SHRI R.K. SINHA DEPARTMENT BY MS. S. PADMAJA DATE OF HEARING 16 . 8 . 201 7 DATE OF PRONOUNCEMENT 16 .8 . 201 7 O R D E R PER B.R. BAS KARAN (AM) : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 22 - 08 - 2016 PASSED BY LD CIT(A) - 10, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2007 - 08. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN UPHOLDING THE VALIDITY OF REOPENING OF ASSESSMENT AND ALSO IN PARTIALLY CONFIRMING THE ADDITION RELATING TO BOGUS PURCHASES. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN GRANTING PARTIAL RELIEF TO THE ASSESSEE. BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY T HIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. INDO UNIQUE TRADING PVT. LTD. 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF DIAMONDS. IT FILED ITS ORIGINAL RETURN OF INCOME U/S 139(1) OF THE ACT ON 27 - 10 - 2007 DECLARING A TOTAL INCOME OF RS.81,59,896/ - . THE AO COMPLETED THE REGULAR ASSESSMENT U/S 143(3) OF THE ACT ON 29 - 09 - 2011 DETERMINING THE TOTAL INCOME AT RS.83,29,411/ - . LATER ON, THE AO REOPENED THE ASSESSMENT AND PASSED ASSESSMENT ORDER U/S 143(3) R.W.S. 147 OF THE ACT ON 04 - 12 - 2012 DETERMINING T HE TOTAL INCOME AT RS.97,52,120/ - . 3. SUBSEQUENT THERETO, THE ASSESSING OFFICER RECEIVED INFORMATION THAT A PERSON NAMED SHRI BHANWARLAL JAIN AND HIS GROUP COMPANIES ARE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES BY WAY OF BOGUS PURCHAS ES, SALES, UNSECURED LOANS, SHARE CAPITAL ETC. IT WAS NOTICED THAT THE ASSESSEE HAS DISCLOSED PURCHASES MADE FROM THE ABOVE SAID GROUP TO THE TUNE OF RS.10.83 CRORES FROM FIVE CONCERNS. THE AO TOOK THE VIEW THAT THOSE PURCHASES ARE BOGUS IN NATURE. HENC E THE ASSESSING OFFICER REOPENED THE ASSESSMENT SECOND TIME BY ISSUING NOTICE U/S 148 OF THE ACT ON 28.03.2014. THE ASSESSEE SUBMITTED ALL THE DOCUMENTS AVAILABLE WITH IT TO PROVE THE GENUINENESS OF PURCHASES. HOWEVER THE AO DISCUSSED ABOUT THE LEGAL POS ITION APPLICABLE TO CASH CREDITS IN DETAIL IN THE ASSESSMENT ORDER, WHICH MAY NOT BE RELEVANT TO THE ISSUE UNDER CONSIDERATION. AFTER SO DISCUSSING THE LEGAL POSITION IN RESPECT OF CASH CREDITS, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS INDULGED IN HAWALA TRANSACTIONS AND ACCORDINGLY HELD THAT THE PURCHASES REFERRED ABOVE ARE BOGUS IN NATURE. HOWEVER, THE AO PREFERRED TO MAKE THE ADDITION OF THE GROSS PROFIT EMBEDDED IN THE ALLEGED BOGUS PURCHASES. THE AO EXAMINED THE G.P RATE AND NP RATE DECLA RED BY THE COMPARABLE COMPANIES. HE NOTICED THAT THE GROSS PROFIT RATE IS DECLARED IN THE RANGE OF 6 TO 7% AND NET PROFIT RATE IS DECLARED IN THE RANGE OF 3 TO 5%. THE AO ALSO REFERRED TO THE INSTRUCTION NO.2/2008 DATED 22 - 02 - 2008 ISSUED IN THE CONTEXT O F BENIGN ASSESSMENT PROCEDURE FOR THE INDO UNIQUE TRADING PVT. LTD. 3 ASSESSEES ENGAGED IN THE DIAMOND MANUFACTURING AND TRADING, WHEREIN IT WAS STATED THAT THE INCOME EXCEEDING 6% OF THE TURNOVER DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. ACCORDINGLY THE AO CAME TO THE CONCLUSION THA T AVERAGE G.P RATE DECLARED IN THE DIAMOND TRADE IS 6% AND ACCORDINGLY PREFERRED TO ADOPT 9% AS THE PROFIT MARGIN EMBEDDED IN THE ALLEGED BOGUS PURCHASES. ACCORDINGLY HE ADDED 9% OF THE ALLEGED BOGUS PURCHASES, I.E., 9% OF RS.10.83 CRORES AMOUNTING TO RS. 97,50,311/ - TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE LD CIT(A) NOTICED THAT THE NOTICES ISSUED BY THE AO U/S 133(6) OF THE ACT TO THE SUPPLIERS HAVE BEEN SERVED AND THEY HAVE ALSO FILED THEIR REPLIES. HE NOTICED THAT THE AO WAS NOT SATISFIED WITH T HE REPLIES SINCE THE INFORMATION LACKED THE DETAILS SOUGHT BY THE AO. THE LD CIT(A) TOOK THE VIEW THAT THE VAT CHARGES APPLICABLE TO THE DIAMOND TRADE WAS 1% AND THE CUSTOM DUTY ON IMPORTS WAS ABOUT 2%. HENCE HE TOOK THE VIEW THAT THE SAVINGS THAT SHOULD HAVE BEEN MADE BY THE ASSESSEE SHOULD BE VIEWED FROM THIS ANGLE. HE ALSO NOTICED THAT THE ASSESSEE HAS DISCLOSED G.P RATE AT 4.67% AND NP RATE AT 1.33%. HE ALSO NOTICED THAT THE ASSESSEES CASE FALLS IN THE EXCEPTION STATED IN THE INSTRUCTION NO.2/2008 ISSUED BY THE CBDT AND HENCE THE SAID INSTRUCTION SHALL NOT APPLY TO THE CASE OF THE ASSESSEE. ACCORDINGLY THE LD CIT(A) TOOK THE VIEW THAT THE IT WOULD BE APPROPRIATE TO SUSTAIN ADDITION TO THE EXTENT OF 3% OF THE ALLEGED BOGUS PURCHASES. ACCORDINGLY HE DIRECTED THE AO TO SUSTAIN THE ADDITION TO THE EXTENT OF 3%. 5. THE ASSESSEE ALSO CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENT, BUT THE SAME WAS REJECTED BY LD CIT(A) BY HOLDING THAT THE AO HAS REOPENED THE ASSESSMENT ON PROPER REASONING. 6. AGGRIEVED, BOTH THE PARTIES HAVE FILED THESE APPEALS ON THE POINTS DECIDED AGAINST EACH OF THEM. INDO UNIQUE TRADING PVT. LTD. 4 7. THE LD D.R SUBMITTED THAT THE SUPPLIERS HAVE COMPLIED WITH THE NOTICES ISSUED U/S 133(6) OF THE ACT, BUT THEY DID NOT EXPLAIN THE REAL NATURE OF TRANSACTIONS AND ALSO DID NOT COUNTER THE RESULT OF INVESTIGATION CONDUCTED IN THE HANDS OF SHRI BHANWARLAL JAIN. ACCORDINGLY SHE SUBMITTED THAT IT CANNOT BE SAID THAT THE ASSESSEE HAS DISCHARGED THE BURDEN OF PROVING THE GENUINENESS OF PURCHASES. ON TH E CONTRARY, THE AO HAS RIGHTLY PLACED RELIANCE ON THE REPORT GIVEN BY INVESTIGATION WING, BEFORE WHOM SHRI BHANWARLAL JAIN HAS ACCEPTED THAT HE AND HIS GROUP COMPANIES WERE ENGAGED IN PROVIDING ONLY ACCOMMODATION ENTRIES. ACCORDINGLY THE LD CIT - DR SAID TH AT THE REOPENING OF ASSESSMENT WAS ON THE BASIS OF PROPER REASONING AND MATERIAL. SHE FURTHER SUBMITTED THAT THE LD CIT(A), AFTER ACCEPTING THE NON - GENUINENESS OF PURCHASES, SHOULD NOT HAVE REDUCED THE ADDITION TO 3% AS AGAINST 9% ESTIMATED BY THE AO. SH E SUBMITTED THAT THE AO HAS GIVEN PROPER BASIS FOR ARRIVING AT THE ESTIMATE OF 9% AND HENCE THE SAME SHOULD NOT HAVE BEEN TINKERED WITH BY THE LD CIT(A). 8. THE LD A.R, ON THE CONTRARY, SUBMITTED THAT THE AO HAS REOPENED THE ASSESSMENT FOR THE SECOND TIME AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. HE SUBMITTED THAT THE AO HAS REOPENED THE ASSESSMENT AFTER THE EXPIRY OF FOUR YEARS ON THE BASIS OF GENERAL STATEMENT GIVEN BY SHRI BHANWARLAL JAIN GROUP. HE SUBMITTED THAT THE AO D ID NOT SPECIFY AS TO HOW THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS. ACCORDINGLY HE CONTENDED THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. 9. ON MERITS, HE SUBMITTED THAT THE ASSESSEE HAS DULY DISCHARGED ITS BURDEN TO PROVE THE GENUINENESS OF PURCHASES. HE SUBMITTED THAT THE NOTICES ISSUED BY THE AO U/S 133(6) OF THE ACT HAVE BEEN SERVED UPON THE SUPPLIERS AND THEY HAVE DULY CONFIRMED THE TRANSACTIONS. HE SUBMITTED THAT THE ASSESSEE HAS ALSO OBTAINED AFFIDAVITS FROM ALL THE SUPPLIERS CONFIRMING THE SALES MADE TO THE INDO UNIQUE TRADING PVT. LTD. 5 ASSESSEE. HE SUBMITTED THAT THE AO COULD NOT CONTROVERT THE SAID EVIDENCES FURNISHED BY THE ASSESSEE. HE SUBMITTED THAT THE AO HAS EXPRESSED THE VIEW THAT THE SUPPLIERS DID NOT D ISCLOSE THE ACTUAL NATURE OF TRANSACTIONS. THE LD A.R SUBMITTED THAT THE IMPUGNED TRANSACTIONS WERE TRADING TRANSACTIONS AND IT HAS BEEN CLEARLY MENTIONED IN THE REPLIES AS WELL AS AFFIDAVITS FILED BY THE SUPPLIERS. HENCE THE OBSERVATION OF THE AO IS NOT CORRECT, AS HE WAS UNDER THE IMPRESSION THAT THESE ARE BOGUS PURCHASES AS PER THE INFORMATION GIVEN BY THE INVESTIGATION WING. IN THIS PROCESS, HE HAS REJECTED ALL THE EVIDENCES IN AN UNJUSTIFIED MANNER. ACCORDINGLY HE SUBMITTED THAT NO ADDITION WAS WA RRANTED AS THE ASSESSEE HAS FULLY PROVED THE GENUINENESS OF PURCHASES. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT FOR THE SECOND TIME AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATION WING ABOUT THE BOGUS NATURE OF TRANSACTIONS ENTERED BY SHRI BHANWARLAL JAIN GROUP. EVEN THOUGH THE AO HAS MENTIONED THE REASONS THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, YET HE HAS NOT SPECIFIED THE MANNER OF FAILURE. 11. ON THE CONTRARY, WE NOTICE THAT THE ASSESSEE HAS PROVED THE GENUINENESS OF PURCHASES BY OBTAINING CONFIRMATION LETTERS IN THE FORM OF AFFIDAVITS FROM ALL THE SUPPLIERS. THE AO HAS DONE INDEPENDENT ENQUIRY DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY ISSUING NOTICES U/S 133(6) OF THE ACT TO ALL THE SUPPLIERS. WE NOTICE THAT THE NOTICES WERE DULY SERVED UPON THE SUPPLIERS AND THEY HAVE ALSO RESPONDED BY FILING THEIR REPLIES DULY CONFIRMING THE TRANSACTIONS. THE AO HAS REJECTED THE REPLIES BY OBSERVING THAT THE REPLIES LACKED DETAILS AND THEY DID NOT MENTION ABOUT THE NATURE OF TRANSACTIONS. IN OUR VIEW, THE SAI D OBSERVATIONS ARE VAGUE IN NATURE. ON THE CONTRARY, A PERUSAL OF THE AFFIDAVITS INDO UNIQUE TRADING PVT. LTD. 6 FURNISHED BY THE SUPPLIERS WOULD SHOW THAT THEY HAVE CONFIRMED THE SALES EFFECTED BY THEM TO THE ASSESSEE. FURTHER THEY HAVE ALSO VERIFIED AND SIGNED THE LEDGER ACCOUNT COPI ES AS AVAILABLE IN THE BOOKS OF ACCOUNT. WHEN THE SUPPLIERS CONFIRM THAT THE TRANSACTIONS OF SALES MADE BY THEM TO THE ASSESSEE ARE GENUINE, THAT TOO, IN RESPONSE TO THE NOTICES ISSUED BY THE AO U/S 133(6) OF THE ACT DURING THE COURSE OF ASSESSMENT PROCEE DINGS, IN OUR VIEW, THE SAID REPLIES CANNOT BE REJECTED WITHOUT BRINGING ON RECORD ANY MATERIAL TO SHOW THAT THEY ARE NOT TRUE. WE NOTICE THAT THE AO DID NOT BRING ANY MATERIAL ON RECORD AND HE SIMPLY RELIED UPON THE REPORT GIVEN BY THE INVESTIGATION WING . AS PER LD A.R, THE STATEMENT GIVEN BY SHRI BHANWARLAL JAIN IS A GENERAL STATEMENT ONLY. THE ASSESSEE, AS STATED EARLIER, HAS FURNISHED CONFIRMATION OF LEDGER ACCOUNTS AND ALSO AFFIDAVITS TO PROVE THE GENUINENESS OF TRANSACTIONS. WE NOTICE THAT THE AO COULD NOT CONTROVERT THOSE DOCUMENTS. 12. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS DULY DISCHARGED THE BURDEN TO PROVE THE GENUINENESS OF PURCHASES. ON THE CONTRARY, THE AO HAS SIMPLY RELIED UPON THE REPORT GIVEN B Y THE INVESTIGATION WING. IN THIS VIEW OF THE MATTER, WE ARE OF THE VIEW THAT NO ADDITION IS CALLED FOR ON ACCOUNT OF ALLEGED BOGUS PURCHASES. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE IMPUGNED A DDITION. 13. SINCE WE HAVE DECIDED THE ISSUE CONTESTED ON MERITS IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO ADJUDICATE THE ISSUE URGED ON VALIDITY OF REOPENING OF ASSESSMENT, AS THE SAME WOULD BE ACADEMIC IN NATURE. INDO UNIQUE TRADING PVT. LTD. 7 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 16 . 8 .201 7. SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 16 / 8 / 20 1 7 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, //TRUE COP Y// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI