ITO 33 (1)(2), MUMBAI V. BHUPENDRA N. SHAH, MUMBAI

ITA 6397/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2092 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 05-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMAPANI BORA
• Keywords: Bogus purchase; Accommodation entries; Reason to believe
• Section: 69C; 143(3); 133(6); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO. 6397/MUM/2018 ( ASSESSMENT YEAR: 2007-08) I.T.O.-33(1)(2), MUMBAI. VS. SHRI BHUPENDRA N SHAH, 17-A, CHANDAN APPARTMENTS, 4 TH FLOOR, SAROJINI NAIDU ROAD, KANDIVALI (WEST), MUMBAI-400067. PAN/GIR NO.ANYPS 4733 P (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI KUMAR PADMAPANI BORA (SR.DR) ASSESSEE BY MS. KINJAL BHUTA DATE OF HEARING 04/12/2019 DATE OF PRONOUNCEMENT 06/12/2019 / O R D E R PER: R.C. SHARMA, A.M. THIS IS THE APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE LD. CIT(A)-45, MUMBAI DATED 09/08/2018 FOR THE A.Y. 200 7-08 IN THE MATTER OF ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE REVENUE IS BASICALLY AGGRIEV ED BY THE ACTION OF LD. CIT(A) FOR UPHOLDING THE ADDITION TO THE EXTENT OF 12.5% OF BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT A SEARCH & SEIZURE ACTION U/S. 132 O F THE ACT WAS CARRIED OUT BY THE DGIT(INV.), MUMBAI IN BHANWARLAL JAIN GR OUP OF CASES ON ITA NO. 6397/MUM/2018 ITO VS BHUPENDRA N SHAH 2 03.10.2013. ON THE BASIS OF STATEMENT OF SHRI BHANW ARLAL JAIN RECORDED AS WELL AS DETAILED ENQUIRIES MADE BY THE WING, INFORMATION WAS PASSED ON TO THIS A.O. THAT SHRI BH ANWARLAL JAIN ALONGWITH HIS SONS SHRI RAJESH BHANWARLAL JAIN AND SHRI MANISH BHANWARLAL JAIN ARE OPERATING AND MANAGING 70 BENAM I CONCERNS IN THE NAMES OF THEIR EMPLOYEES THROUGH WHICH THEY PROVIDE ACCOMMODATION ENTRIES OF UNSECURED LOANS AND BOGUS PURCHASES. FUR THER, FROM THE DETAILS RECEIVED FROM THE DGIT(INV.), MUMBAI IT IS SEEN THAT THE ASSESSEE, SHRI BHUPENDRA N. SHAH IS ALSO ONE OF THE BENEFICIARY WHO OBTAINED ACCOMMODATION ENTRIES OF RS.16,60,419/- DU RING THE F.Y. 2006-07 RELEVANT TO THE YEAR UNDER CONSIDERATION UN DER THE GARB OF 'BOGUS PURCHASES' FROM THE FOLLOWING GROUP CONCERNS OF SHRI BHANWARLAL JAIN: SR. NO. NAME OF THE BOGUS PARTY AMOUNT INVOLVED (RS ) 1. JEWEL DIAM 16,60,416 TOTAL 16,60,419 ACCORDINGLY, THE THEN A.O. HAD REASON TO BELIEVE TH AT AN AMOUNT OF RS.16,60,419/- IS SIMPLY AN ACCOMMODATION ENTRY AND NO ACTUAL TRANSACTIONS WERE CARRIED OUT BY THE ASSESSEE AND T HUS, THE SAID AMOUNT HAS ESCAPED ASSESSMENT FOR A.Y. 2007-08. 4. AFTER REOPENING OF THE ASSESSMENT, THE A.O. MADE INDEPENDENT ENQUIRY BY ISSUING NOTICE U/S 133(6) OF THE ACT. TH E ASSESSEE WAS ALSO ASKED TO PRODUCE THE PARTIES. HOWEVER, THE ASSESSEE EXPRESSED HIS ITA NO. 6397/MUM/2018 ITO VS BHUPENDRA N SHAH 3 INABILITY TO PRODUCE THESE PARTIES FOR CROSS VERIFI CATION. ACCORDINGLY, THE A.O. ADDED ENTIRE AMOUNT OF SUCH BOGUS PURCHASES TO THE INCOME OF THE ASSESSEE U/S 69C OF THE ACT. 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION ONLY TO THE EXTENT OF 12.5% OF ALLEGED BOGUS PURCHASES W HICH COMES TO RS. 2,07,540/-, AGAINST WHICH THE REVENUE IS IN FURTHER APPEAL BEFORE THE ITAT. 6. IT WAS ARGUED BY THE LD AR OF THE ASSESSEE THAT THE ASSESSEE HAS FURNISHED ALL THE DOCUMENTS AND EVIDENCE TO PROVE G ENUINENESS OF PURCHASES AND THE NOTICES ISSUED U/S 133(6) OF THE ACT WAS ALSO DULY SERVED ON THE RESPECTIVE PARTY, THEREFORE, NO ADDIT ION SHOULD HAVE BEEN MADE IN RESPECT OF SUCH BOGUS PURCHASES. 7. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDER OF THE A.O. 8. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ADDITION HAS BEEN MADE IN RESPECT OF BOGUS PURCHASE S. WITH RESPECT TO ISSUE REGARDING ADDITION IN RESPECT OF BOGUS PURCHA SES, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. IN ITA NO. 1004 OF 2016 VIDE ITS ORDER D ATED 11/02/2019 HAVE HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN ITA NO. 6397/MUM/2018 ITO VS BHUPENDRA N SHAH 4 BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUE STION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIR E PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOM E OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT T HE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DIS CREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMIT ED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RAT E OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT I N THE CASE OF N.K. INDUSTRIES LTD.. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY TH E ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD AD MITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURIN FINANCIAL YEAR 1997- 98 IS CONCERNED, WE ARE OF THE VIEW THAT THE ASSESS EE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REV ENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO A CCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE. WE HAVE TO REDU CE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROF IT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/WHI CH COMES TO RS.2098.62 1.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98.621.88 AS G ROSS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSW ERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR O F THE REVENUE.' ITA NO. 6397/MUM/2018 ITO VS BHUPENDRA N SHAH 5 9. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 HAS HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIRMED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISION OF HONBLE GUJAR AT HIGH COURT IN THE CASE OF SMITH P.SETH (SUPRA). WE HAVE CONSIDERED THE RIVAL CONTENTIONS ITA NO. 4192/MUM/2018 AND ARE OF THE VIEW THAT HON'BLE BOMB AY HIGH COURT IN THE CASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPR A) HAS CONSIDERED THIS ISSUE AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT OF DIFFERENTIAL PERC ENTAGE AS DECLARED ON THE BOGUS PURCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO ACCORDINGLY. 10. IT IS CLEAR FROM THE ABOVE DECISIONS THAT IN CA SE OF BOGUS PURCHASES WHERE SALES ARE ACCEPTED, THE ADDITION IS REQUIRED TO BE MADE ONLY TO THE EXTENT OF DIFFERENCE BETWEEN THE GP DEC LARED BY THE ASSESSEE ON NORMAL PURCHASES VIS A VIS BOGUS PURCHA SES. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE JURISDICTIONAL H IGH COURT AND THE COORDINATE BENCH OF THE ITAT, MUMBAI, I DIRECT THE A.O. TO RESTRICT THE ADDITION TO THE EXTENT OF LOWER GP DECLARED BY THE ASSESSEE IN RESPECT OF BOGUS PURCHASES AS COMPARED TO GP ON NORMAL PURCHAS ES. THE ASSESSEE IS ALSO DIRECTED TO GIVE FULL DETAILS TO THE A.O. W ITH REGARD TO GP EARNED ON NORMAL PURCHASES AND ALSO GP EARNED ON ALLEGED B OGUS PURCHASES. I DIRECT ACCORDINGLY. ITA NO. 6397/MUM/2018 ITO VS BHUPENDRA N SHAH 6 11. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH DECEMBER, 2019. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 06/12/2019 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//