PURARAM MODI, MUMBAI V. INCOME TAX OFFICER 19(2)(5), MUMBAI

ITA 6575/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8395 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: IN CIRCUMSTANCES OF CA SE; STOCK MOVEMENT BEING
• Keywords: Bogus purchase; Principle of natural justice; Opportunity of cross examination; Accommodation entries; Set aside
• Section: 142(1); 143(2); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO. 6575 /MUM/201 8 ( / ASSESSMENT YEAR: 20 0 9 - 1 0 ) PURARAM MODI 2 ND FLOOR, ROOM NO.10, PUSH PA SADAN, 2/4, 2 ND CARPENTER STREET, MUMBAI - 400004 . / VS. ITO 19(2)(5) ROOM NO.210, MATRU MANDIR, TARDEO ROAD, MUMBAI - 400007. ./ ./ PAN/GIR NO. : ARLPM5879R ( / APPELLANT ) .. ( / RESPOND ENT ) / DATE OF HEARING: 07 / 01 / 20 20 /DATE OF PRONOUNCEMENT: 15 / 01 / 2020 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 10 . 0 9 .201 8 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 30 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 09 - 1 0 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - GROUND 1 - ESTIMATED ADDITION OF SUSPICIOUS PURCHASES OF RS.2.00,07,408/ - ON THE FACTS OF AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN MAKING ESTIMATED ADDITION ON SUSPICIOUS PURCHASES AND NO T APPRECIATING THE FACTS OF THE CASE WHEREIN THE ASSESSEE HAS SUBMITTED THE INVOICES, BANK STATEMENT (REFLECTING PAYMENT THOUGH ACCOUNT PAYEE CHEQUE) AND STOCK MOVEMENT - BEING ASSESSEE BY : SHRI SUMIT MISHRA (AR) REVENUE BY: SHRI SOMNATH WAJALE (AR) ITA NO. 6575 / M/201 8 A.Y.20 0 9 - 1 0 2 INWARDS OF MATERIAL (FROM SUSPICIOUS DEALER) AND ITS SUBSEQUENT SALES WITH PROF IT MARGIN ON THE SAME THUS, ONUS OF PROVING TRANSACTIONS GENUINE WAS COMPLETED. FURTHER, NO ERROR OR MISTAKES WERE FOUND OR NOTED BY ID. AO WITH RESPECT TO SUCH DETAILS, AND IN PARTICULAR WITH RESPECT TO STOCK MOVEMENTS AND THUS, CONSIDERING THE PURCHASES AS GENUINE, ADDITION IS BAD IN LAW AND NEEDS TO BE DELETED. GROUND 2 ADDITION @ 12.5% MINUS GROSS PROFIT OFFERED INSTEAD OF 6.5% MINUS GP. ON THE FACTS OF AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLO WANCE TO 12.5% MINUS GROSS PROFIT ALREADY OFFERED, WITHOUT APPRECIATING THE FACT THAT SUCH 12.5% SHOULD BE CONSTRUCTED AS 6.5%. THUS, SHOULD HAVE MADE ADDITION AS 6.5% MINUS GROSS PROFIT OFFERED. GROUND 3 - NO OPPORTUNITY TO CROSS - EXAMINE THE PARTIES ON T HE FACTS OF AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UNDERSTANDING THAT AO HAS MERELY RELIED ON INFORMATION RECEIVED FROM SALES TAX DEPARTMENT WITHOUT MAKING INDEPENDENT ENQUIRIES. FURTHER NEITHER ANY STATEMENT ON WHICH RELIANCE WAS PAID FOR ADDITION WAS PROVIDED TO APPELLANT NOR OPPORTUNITY OF CROSS EXAMINATION WAS PROVIDED, DENYING PRINCIPLE OF NATURAL JUSTICE, AND THUS ADDITION IS BAD IN LAW AND NEEDS TO BE DELETED. GROUND 4 - RESTRICTION OF ADDITION UP TO GROSS PROFIT OR NET PROFIT RATIO. ON THE FACTS OF AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT RESTRICTING ADDITIONS TO NET PROFIT OR GROSS PROFIT (IF NOT NET PROFIT) ALTHOUGH AO AGREED THAT ONLY PROFIT EMBEDDED IN SUCH PURCHASES TO BE TAKEN AS THE PROFIT EARNED FROM PURCHASES SHOWN TO HAVE BEEN MADE FROM NON - EXISTENCE PARTIES. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 24 . 09 .20 0 9 DECLARING TO TAL INCOME TO THE TUNE OF RS .2,71,480 / - FOR THE A.Y. 2009 - 10 . THE CASE OF THE ASSESSEE WAS REOPENED BY ISSUANCE OF NOTICE U/S 148 OF THE ACT DATED 19.02.2014. THE REASON RECORDED FOR REOPENING OF THE ASSESSMENT WA S ALSO COMMUNICATED TO THE ASSESSEE. THE NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ITA NO. 6575 / M/201 8 A.Y.20 0 9 - 1 0 3 ASSESSEE. IN THIS CASE, THE CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF INFORMATION RECEIVED FROM THE DGIT(INV.) DATED 26.12.2013 IN WHICH IT WAS COMMUNICATED THAT THE ASSESSEE HAS TAKEN THE ACCOMMODATION ENTRIES OF PURCHASE OF RS.2,00,07,408/ - FROM THE FOLLOWING SIX PARTIES. S. NO. NAME OF THE PARTY AMOUNT 1 NAVRATAN IMPEX 6,405,807 2 ANAND DEEP METAL 9,448,863 3 ASIAN STEEL 126,770 4 TYSON STEEL & TUBES 319,488 5 HARDIK METAL CORP 1,044,763 6 CORUS STEEL & ALLOYS 2,661,717 TOTAL 2,00,07,408 4. AFTER THE REPLY OF THE ASSESSEE, THE ADDITION WAS RESTRICTED TO THE EXTENT OF 25% OF THE BOGUS PURCHASE IN SUM OF RS.2,00,07,408/ - . THE TOT AL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.15,55,240/ - . THEREAFTER, ASSESSEE FILED AN APPEAR BEFORE THE CIT(A) WHO RESTRICTED THE ADDITION TO THE EXTENT OF 12.5% OF THE BOGUS PURCHASE IN SUM OF RS.2,00,07,408/ - . THE ASSESSEE WAS NOT SATISFIED , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 5 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD . AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ADDITIO N IN CONNECTION WITH THE BOGUS PURCHASE BE RESTRICTED ON THE BASIS OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT VS. MS. MOHOMMAD HAJI ADAM & CO. BEARING ITA. NO. 1004 OF 2016 DATED 11.02.2019. HOWEVER, ON THE OTHER HAND THE LD. REPRESENT ATIVE OF THE DEPARTMENT HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. THE ITA NO. 6575 / M/201 8 A.Y.20 0 9 - 1 0 4 HONBLE BOMBAY HIGH COURT IN THE CASE TITLED AS M/S. MOHOMMAD HAJI ADAM & CO. (SUPRA) HAS GIVEN THE FOLLOWING DIRECTIONS: - 8 IN THE PRESENT CASE, AS NOTED AB OVE, THE ASSESSEE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE INDULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCHASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON S UCH BASIS. DESPITE THIS, THE QUESTION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIRE PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSEES ADDITIONAL INCOME 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 THE DEPARTMENT HAD NOT DISPUTED THE ASSESSEES SALES. THERE WAS NO DISCREPANCY 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 LIMITED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RATE OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT IN 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 TH E QUESTION REGARDING ADDITION OF RS.3,70,78,125/ - AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY THE ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD ADMITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997 - 98 IS CONCERNED, W E ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6 % GROSS PROFIT IS TAKEN INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED TO BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRIC E. WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT COMES TO 5.66 %. THEREFORE, CONSIDERING 5.66 % OF RS.3,70,78,125/ - WHICH COMES TO RS.20,98,621.88 WE THINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GROSS PROFIT A ND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASSESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE. 6. ACCORDINGLY, WE SET ASIDE THE FINDING OF THE CIT(A) IN QUESTION AND RESTORE THE ISSUE BEFOR E THE AO TO DECIDE THE MATTER OF CONTROVERSY ON THE BASIS OF THE SAID DECISION AND IF THE AO FINDS THAT THE G.P. DISCLOSED IN ITA NO. 6575 / M/201 8 A.Y.20 0 9 - 1 0 5 RESPECT OF PURCHASES FROM THESE PARTIES IS LOWER THAN THE G.P. DISCLOSED IN RESPECT OF OTHER UNDISPUTED PURCHASE, ADDITION SHOULD BE MADE TO THAT EXTENT ONLY. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 15 /01/2020 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 15 /01/2020 V IJAY PAL SINGH/ 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, //TRUE COPY// ( ASSISTANT REGISTRAR ) , / ITAT, MUMBAI