INCOME TAX OFFICER 32(2)(2), MUMBAI V. M/S.KAWACHI GROUP , MUMBAI

ITA 6526/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2078 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 15-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMAPANI BORA
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER ITA NO. 6526/MUM/2018 ( ASSESSMENT YEAR: 2009-10) I.T.O.-32(2)(2), ROOM NO. 304, 3 RD FLOOR, C-11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051. VS. M/S KAWACHI GROUP, 228/2 ND FLR, NEHA INDUSTRIAL ESTATE, NEAR HYUNDAI SERVICE STATION, BORIVALI-E- 66. PAN/GIR NO.AAAHK 6370 B (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI KUMAR PADMAPANI BORA (SR.DR) ASSESSEE BY NONE DATE OF HEARING 05/12/2019 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)-44, MUMBAI DATED 14/08/2018 FOR THE A.Y. 2009-10 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. NO BODY APPEARED ON BEHALF OF THE ASSESSEE IN SP ITE OF SERVICE OF NOTICE, THEREFORE, THE BENCH DECIDED TO DISPOSE OFF THE APPEAL AFTER HEARING THE LD. DR AND CONSIDERING THE MATERIAL PLA CED ON RECORD. ITA NO. 6526/MUM/2018 ITO VS M/S KAWACHI GROUP 2 3. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ACTION OF THE LD. CIT(A) FOR RESTRICTING THE ADDITION ON ACCOUNT OF B OGUS PURCHASES TO THE EXTENT OF 12.5% IN PLACE OF 100% ADDITION MADE BY THE A.O. 4. I HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AND FOUND THAT ON THE BASIS OF INFORMATION FROM THE SAL ES TAX DEPARTMENT, THE A.O. ADDED ENTIRE PURCHASES ALLEGED TO BE BOGUS IN ASSESSEES INCOME. BY THE IMPUGNED ORDER, THE LD. CIT(A) RESTR ICTED THE ADDITION TO THE EXTENT OF 12.5% OF BOGUS PURCHASES AFTER HAV ING THE FOLLOWING OBSERVATION: 6.3.29 THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE ABOVE MENTIONED CASE. IN THE PRESENT CASE, THE LD. AO HAS SHOWN THAT THE PARTY IN QUESTION WAS NONEXISTENT. T HE APPELLANT HAS NOT BEEN ABLE TO DISPROVE THE FINDING S OF THE LD. AO REGARDING THE NON-EXISTENCE OF THE PARTY. HO WEVER, LD. AO AFTER EXAMINING THE EVIDENCES DID NOT GIVE A NY ADVERSE FINDING THAT THE APPELLANT HAD NOT SHOWN CONSUMPTION/ SALES OF THE GOODS AND THAT IT HAD NOT OFFERED THE INCOME ON SUCH SALE OF GOODS. IN THIS CASE, LD. A.O . NOT HAVING DOUBTED THE GENUINENESS OF SALES COULD NOT HAVE GON E AHEAD AND MADE ADDITION IN RESPECT OF THE ENTIRE PURCHASES AS IT WOULD LEAD TO ABSURD PROFITS. THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT THE ELEMENT OF SUPPRESSED PROFIT EMBEDDED IN PU RCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNO WN OR BOGUS ENTITIES. HENCE, FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN BHOLANATH POLYFAB PVT. LTD. ( SUPRA), THE ESTIMATED SUPPRESSED PROFIT MARGIN EMBEDDED IN SUCH AMOUNTS OF PURCHASES COULD ONLY BE DISALLOWED AND SUBJECTED TO TAX. ITA NO. 6526/MUM/2018 ITO VS M/S KAWACHI GROUP 3 6.3.30 SIMILARLY, IN YET ANOTHER DECISION OF HON'B LE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HON'BLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS O F STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PR OVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WE RE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUN T OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT( A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT F ROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, P ARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE AS SESSEE. THE TRIBUNAL HOWEVER, PARTLY SUSTAINED THE ADDITION. TA KING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH C OURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE M ADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCO UNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LA W AROSE IN SUCH ESTIMATION. WHILE ARRIVING AT THE ABOVE CONCLU SION, THE HON'BLE COURT ALSO RELIED ON THE DECISION IN THE CA SE OF VIJAY M. MISTRY CONSTRUCTION LTD. 355 ITR 498 (GUJ. ) AND FURTHER APPROVED THE DECISION OF AHMEDABAD BENCH, ITAT IN T HE CASE OF VIJAY PROTEINS 58 LTD 428. 6.3.31 IN THE CASE OF VIJAY PROTEINS (SUPRA), THE I -ION'BLE ITAT WAS SEIZED WITH A CASE OF BOGUS SUPPLIERS OF OIL CAKES WHERE 3 3 PARTIES WERE FOUND TO BE BOGUS BY THE DEPARTMENTAL AUTHORITIES EVEN THOUGH PAYMENTS WERE MADE TO THE SAID PARTIES BY CROSS CHE QUES AND IN FACT THE A.O. IN THAT CASE HAD BROUGHT ADEQUATE MAT ERIAL ON RECORD TO PROVE THAT THE CROSS CHEQUES HAD NOT BEEN GIVEN TO PARTIES FROM WHOM SUPPLIES WERE ALLEGEDLY PROCURED BUT THESE WERE ENCASHED FROM A BANK ACCOUNT IN THE NAME OF AN OTHER ENTITY, POSSIBLY HAWALA DEALER. SUBSEQUENTLY, THE MONEY DEP OSITED IN ITA NO. 6526/MUM/2018 ITO VS M/S KAWACHI GROUP 4 THAT ACCOUNT WAS WITHDRAWN IN CASH ALMOST ON THE SA ME DAY. THE TRIBUNAL HOWEVER, HELD THAT IF THE PURCHASES WERE M ADE FROM OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS, THE SUP PLIERS MAY BE WILLING TO SELL THE PRODUCT AT A MUCH LESS RATE AS COMPARED TO A RATE WHICH THEY MAY CHARGE IN WHICH THE DEALER HAS TO GIVE GENUINE SALE INVOICE IN RESPECT OF THAT SALE. KEEPI NG ALL SUCH FACTORS IN MIND, THE TRIBUNAL ESTIMATED AN ELEMENT OF PROFIT PERCENTAGE OF THE OVERALL PURCHASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH FICTITIOUS INVOICES. 6.3.32 AS NARRATED EARLIER, THE A.O. IN THIS CASE HAS HELD THAT THE PARTIES FROM WHICH THE PURCHASES WERE MADE BY THE APPELLANT WERE FOUND TO BE BOGUS AND THAT IS THE REASON FOR WHICH IT WAS NOT PRODUCED DURING THE ASSESSMENT PROCEEDINGS. NOT HAVING DOUBT ED THE CONSUMPTION/SALES, THE MOTIVE BEHIND OBTAINING BOGU S BILLS THUS, APPEARS TO BE INFLATION OF PURCHASE PRICE SO AS TO SUPPRESS TRUE PROFITS. CONSIDERING THE FACTS OF THE CASE AS WELL AS THE VARIOUS CASE LAWS CITED (SUPRA), I ESTIMATE THE SUPPRESSED PROFIT TO THE EXTENT OF 12.5% OF THE PURCHASES MADE FROM THE BOGU S ENTITIES, AS THE SUPPRESSED PROFIT ELEMENT EMBEDDED IN SUCH PURC HASES. THIS ESTIMATION IS IN ADDITION TO THE GP SHOWN BY THE AP PELLANT. THUS, ADDITION OF RS.93,600/- (BEING 12.5% OF RS.7,48,800 /-) IS CONFIRMED AND THE BALANCE IS DELETED. ACCORDINGLY, GROUNDS OF APPEAL RAISED BY THE APPELLANT ARE PARTLY ALLOWED. 5. I HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AND FOUND THAT THE A.O. HAS MADE ADDITION AFTER GETTING INFORMATION FROM THE SALES TAX DEPARTMENT REGARDING THE ASSESSEE TAK ING ACCOMMODATION BILL IN RESPECT OF PURCHASES WITHOUT TAKING PHYSICAL DELIVERY OF THE GOODS. BY THE IMPUGNED ORDER, THE L D. CIT(A) AFTER ITA NO. 6526/MUM/2018 ITO VS M/S KAWACHI GROUP 5 RECORDING A FINDING TO THE EFFECT THAT THE TOTAL SA LES MADE BY THE ASSESSEE HAS NOT BEEN DISPUTED BY THE A.O. AND AFTE R CONSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS, HE RESTRICTED THE ADDITION TO THE EXTENT OF 12.5%. NOTHING WAS BROUGHT ON RECORD BY THE LD DR SO AS TO PERSUADE ME TO DEVIATE FROM THE FINDINGS OF THE LD. CIT(A) FOR RESTRICTING THE ADDITION TO THE EXTENT OF 12.5%. AC CORDINGLY, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) I N RESTRICTING THE ADDITION TO THE EXTENT OF 12.5%. I UPHOLD THE SAME. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 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//