ACIT 19(2), MUMBAI V. POLAR STAR, MUMBAI

ITA 6724/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9618 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 17-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure; Cost of acquisition; Accommodation entries
• Section: 143(3)

Judgement Text

ITA NO. 5 877 & 6724/M/2016 POLAR STAR 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH G, MU MBAI BEFORE SHRI P.K. BANSAL, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5877/MUM/2016 (ASSESSMENT YEAR- 2012-13) M/S POLAR STAR, DW-5040,1 ST FLOOR, G. BLOCK, BHARAT DIAMOND HOUSE, B.K.C. , BANDRA (EAST), MUMBAI-400051 PAN:AAAFP0525F VS. ACIT 19(2), INCOME TAX OFFICE, MATRU MANDIR , TARDEO MUMBAI-400051 (APPELLANT) (RESPONDENT) ITA NO. 6724/M/2016(ASSESSMENT YEAR- 2012-13) ACIT 19(2), INCOME TAX OFFICE, MATRU MANDIR , TARDEO MUMBAI-400051 VS. M/S POLAR STAR, DW-5040,1 ST FLOOR, G. BLOCK, BHARAT DIAMOND HOUSE, B.K.C. , BANDRA (EAST), MUMBAI-400051 PAN:AAAFP0525F (APPELLANT) (RESPONDENT) ASSESSEE REPRESENTED BY SH. VIJAY MEHTA- AR REVENUE REPRESENTED BY -- SH. V. VIDHYADHAR DR DATE OF HEARING: 05.09.2017 DATE OF ORDER: 05.09.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THESE TWO CROSS-APPEAL UNDER SECTION 253 OF INCOME TAX ACT ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS) - 30, D ATED 19 AUGUST 2016 FOR ASSESSMENT YEAR 2012-13. THE ASSESSEE IN ITS AP PEAL ITA NO. 5877/ M/ 2016 HAS RAISED FOLLOWING GROUNDS OF APPEAL; ITA NO. 5 877 & 6724/M/2016 POLAR STAR 2 (I) THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRM ING THE ADDITION OF RS.19,16,509/- COMPUTED @ 3% ON VAT PAID PURCHASES OF RS.6,38,83,622/- FROM MUMBAI PARTIES AND RS.1,07,10,438/- COMPUTED @ 2% ON PURCHASES OF RS.53,55,21,911/-FROM SURAT AND AGAINST H FORM A FFECTED FROM ALLEGEDLY BOGUS PARTIES AS AGAINST ADDITION OF RS. 4,79,52,44 3/-COMPUTED @ 8% OF SUCH PURCHASES IS DONE BY THE LEARNED AO. THE BALANCE A DDITION OF RS. 1,26,26,47/- CONFIRMED BY THE LEARNED COMMISSIONER APPEAL(APPEA LS) BE DELETED AND ASSESSED INCOME BE REDUCED ACCORDINGLY. 2. THE REVENUE ITS APPEAL HAS RAISED FOLLOWING GROUNDS OF APPEAL; (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LEARNED COMMISSIONER (APPEALS) WAS CORRECT IN REDUCING THE ADDITION MADE BY AO @3% ON PURCHASES RS. 6,38,83,622/- AND MADE FROM MUMBAI & @ 2% ON PURCHASES OF RS. 53,55,21,911/ -MADE FORM H FROM SURAT. (2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED COMMISSIONER (APPEALS) WAS CORRECT IN DELETING THE ADDITION OF RS.39,59,626/- MADE BY AO ON ACCOUNT OF DISALLOWING OF LOSS ON AC COUNT OF REVALUATION OF OUTSTANDING FOREIGN EXCHANGE FORWARD CONTRACT AND N OT APPRECIATING THE FACT THAT THE SAID LOSS WAS AN UNASCERTAINED LIABILITY BEING A NOTIONAL LOSS AND HENCE ARE NOT TO BE ALLOWED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN INCOME FROM THE BUSINESS OF TRADING, MANUFACTURING AND EXPORTING OF DIAMONDS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT AS SESSMENT YEAR ON 29 SEPTEMBER 2012 DECLARING TOTAL INCOME OF RS. 5,09,9 0,126/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 27 TH OF MARCH 2015. THE ASSESSING OFFICER WHILE PASSING ASS ESSMENT ORDER DISALLOWED A SUM OF RS. 4,79,52,443/- ON ACCOUNT OF BOGUS PURCHASES. THE ASSESSING OFFICER MADE THE DISALLOWANCE @ 8% OF THE TOTAL PURCHASES OF RS. 59,94,05,533/- SHOWN BY THE ASSESSEE. THE A SSESSING OFFICER ALSO DISALLOWED LOSS ON ACCOUNT OF FOREIGN EXCHANGE FORW ARD CONTRACTS OF ITA NO. 5 877 & 6724/M/2016 POLAR STAR 3 RS.39,59,626/-. ON APPEAL BEFORE COMMISSIONER (APPE ALS) THE ADDITION ON ACCOUNT OF DISALLOWANCE OF LOSS OF FOREIGN EXCHA NGE FORWARD CONTRACT WAS DELETED. HOWEVER, THE DISALLOWANCE ON ACCOUNT O F BOGUS PURCHASES WAS RESTRICTED TO 2% PURCHASES FROM SURAT AND ON PU RCHASES AGAINST FORM H, AND AT THE RATE OF 3% PURCHASES AT MUMBAI. TH US, FURTHER AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) BOTH THE PAR TIES ARE FILE THEIR CROSS-APPEALS RAISING THE GROUNDS OF APPEAL AS REFE RRED ABOVE. 4. WE HAVE HEARD LD AR OF THE ASSESSEE AND LD DR FOR T HE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARN ED AR OF THE ASSESSEE ARGUED THAT ASSESSING OFFICER HAS NOT MADE AN INDEP ENDENT ENQUIRY BEFORE MAKING ADDITION. THE ADDITION WAS MADE ONLY ON THE BASIS OF THIRD-PARTY INFORMATION. IT WAS ARGUED THAT THAT SAID PARTIES A RE ASSESSED WITH DIFFERENT ASSESSMENT AUTHORITIES AND THE BOOKS OF A CCOUNTS OF ALL THOSE PARTIES ARE ALSO AUDITED. IT WAS FURTHER ARGUED THA T THE ASSESSING OFFICER NEVER DOUBTED THE IDENTITY OF THE PARTIES ONLY THE PURCHASES MADE FROM THESE PARTIES WERE DOUBTED. THE LD AR OF THE ASSESS EE ARGUED THAT IN ALL FAIRNESS THE ADDITION MAY BE RESTRICTED @ 2% IN RES PECT OF ALL TRANSACTION RELATED WITH THE BOGUS PURCHASES. THE LD AR OF THE ASSESSEE FURTHER RELIED ON THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3 ) DATED 9 DECEMBER 2016 PASSED BY ASSESSING OFFICER IN CASE OF ONE K. RAJNIKANT & CO. (PAN AAAFK1490J) WHEREIN THE ASSESSING OFFICER MADE THE ADDITION ONLY @ 3% OF THE PURCHASE COST FROM THE SIMILAR PARTIES. T HE LD AR BROUGHT OUR ITA NO. 5 877 & 6724/M/2016 POLAR STAR 4 ATTENTION THAT THIS ASSESSMENT ORDER WAS ALSO BASED ON THE SEARCH AND SURVEY ACTION CONDUCTED IN CASE OF BHANWARLAL JAIN GROUP. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE ARGUED THAT THE I NVESTIGATION WING OF THE INCOME-TAX DEPARTMENT MADE FULL-FLEDGED ENQUIRY . THE PARTIES FROM WHOM THE ASSESSEE HAS SHOWN THE PURCHASES ARE BOGUS HAWALA DEALERS. THE HAWALA DEALERS ARE INDULGED IN ISSUING BOGUS BI LLS WITHOUT DELIVERY OF ANY MATERIAL OR GOODS. THE ASSESSEE OBTAINED ACCOMM ODATION BILLS ONLY IN ORDER TO INFLATE THE EXPENSES AND TO BRING DOWN THE PROFITABILITY IN ORDER TO AVOID THE TAX. THE LD. DR FOR THE REVENUE PRAYED FOR DISMISSAL OF THE APPEAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS MENT ORDER REVEALS THAT A SEARCH AND SEIZURE ACTION AS WELL AS SURVEY OPERA TION WAS CONDUCTED ON 3 OCTOBER 2013 BY THE INVESTIGATION WING OF THE DEP ARTMENT IN CASE OF SHRI BHANWARLAL JAIN. DURING THE COURSE OF SEARCH AND SURVEY OPERATION, IT WAS FOUND THAT SEVERAL NAME LENDING COMPANY DIRE CTORS, PARTNERS, PROPRIETORS OF VARIOUS CONCERN BELONGS TO THE NATI VE PLACE OF BHANWARLAL JAIN AND HIS FAMILY. THIS FACT WAS ADMITTED BY THOS E PARTIES IN THEIR STATEMENT RECORDED DURING THE COURSE OF SEARCH OPER ATION UNDER SECTION 132. IN THE STATEMENTS THE DIRECTORS / PROPRIETORS AND PARTNERS HAVE ALSO ADMITTED THAT THEY MADE ACCOMMODATION ENTRIES OF PU RCHASES FROM SIX OF ITA NO. 5 877 & 6724/M/2016 POLAR STAR 5 THOSE DUMMY CONCERN IN THE NAME OF M/S MAYUR EXPOR TS, PRIME STAR, MOHIT ENTERPRISES, ABHINAM GEMS, PARVATI EXPORTS AND MEGHA GEMS TO THE ASSESSEE. IN THE POST-SEARCH INFORMATION RECEIV ED FROM THE INVESTIGATION WING OF THE DEPARTMENT IT WAS REVEALE D THAT ASSESSEE HAS MADE THE PURCHASES OF RS.59,94,05,533/- FROM THOSE ACCOMMODATION ENTRY PROVIDERS. THE DETAILS OF THE PURCHASES FROM SUCH HAWALA DEALERS WHICH ARE DISPUTED BY THE AO IS SHOWN IN THE FOLLO WING MANNER; SR. NO. NAME OF THE PARTY AMOUNT RS. 1 PRIME STAR 143508582 2 MOHIT ENTERPRISES 269153056 3 MAYUR EXPORTS 139211148 4 ABHINAM GEMS 47395057 5 PARVATI EXPORTS 2676300 6 MEGHA GEMS 3761390 7 TOTAL 59,94,05,533/ 6. DURING THE ASSESSMENT THE ASSESSEE WAS CONFRONTED W ITH THE INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTM ENT. THE ASSESSEE IN ITS REPLY DATED 16 MARCH 2015 CONTENDED THAT THE PU RCHASES MADE BY ASSESSEE ARE GENUINE. THE ASSESSEE FURTHER CONTENDE D THAT ALL THE PURCHASES HAVE BEEN RECORDED IN ITS BOOKS OF ACCOUN T AND THE PAYMENT HAVE MADE THROUGH CHEQUES. THE ASSESSEE ALSO HAS S HOWN THE STOCK REGISTER ENTRY AND CHEQUE PAYMENTS, CUSTOM APPRAISA L REPORT IN RESPECT TO EXPORT SALE. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY THE ITA NO. 5 877 & 6724/M/2016 POLAR STAR 6 ASSESSING OFFICER. THE ASSESSING OFFICER NOTICED TH AT NO DOCUMENTS RELATED TO DELIVERY CHALLANS WERE PRODUCED DURING THE ASSES SMENT PROCEEDINGS. THE ASSESSING OFFICER ON THE BASIS OF INFORMATION O F THE INVESTIGATION WING OF THE DEPARTMENT CONCLUDED THAT THE ASSESSEE WAS ACTUALLY IN POSSESSION OF THE GOODS AND CONCLUDED THAT THE ASSE SSEE WAS ONE OF THE BENEFICIARIES OF THE ACCOMMODATION BILLS. THE ASSES SING OFFICER ON THE BASIS OF GP AND NP MARGIN MADE THE ADDITION AT THE RATE OF 8% OF THE TOTAL OF THE IMPUGNED PURCHASES FROM SIX ALLEGED HA WALA DEALERS. THE ASSESSING OFFICER MADE THE ADDITION AT THE RATE OF 8% OF THE ALLEGED BOGUS PURCHASES FROM THE HAWALA DEALERS. THE ASSESSING OF FICER MADE THE ADDITION HOLDING THAT THE MATERIAL PURCHASES FROM T HE HAWALA PARTIES HAVE BEEN ENTERED INTO STOCK REGISTER AND THE ASSESSEE H AS SHOWN THE CORRESPONDING SALE AGAINST THE SAID PURCHASES. THIS FACT COULD ONLY LEAD TO THE FACT THAT DIAMONDS WERE BOUGHT BY THE ASSESSEE FROM GREY MARKET (WHICH IS A COMMON PRACTICE PREVALENT IN SURAT AND MUMBAI). THE ASSESSEE TO ADJUST THE TRANSACTION INTO THE BOOKS O F ACCOUNT MUST HAVE OBTAINED THE BILLS FROM HAWALA DEALERS. THE ASSESSI NG OFFICER CONCLUDED THAT THE GENUINENESS OF THE PARTIES IS DOUBTED BUT GENUINENESS OF PURCHASES AS A WHOLE CANNOT BE DOUBTED. THE ASSESSI NG OFFICER AFTER EXAMINING THE GP AND THE PROFIT MARGIN OF DIAMOND B USINESS MADE THE ADDITION @8% OF THE TOTAL PURCHASES FROM HAWALA DEA LERS. THE LD. COMMISSIONER (APPEALS) WHILE CONSIDERING THE GROUND S OF APPEAL ITA NO. 5 877 & 6724/M/2016 POLAR STAR 7 OBSERVED THAT THE RATE OF VAT IS STATED TO BE 1% IN MUMBAI, ON THE PURCHASES MADE UNDER FORM H NO VAT IT CHARGEABLE. THE LD COMMISSIONER( APPEALS) FURTHER OBSERVED THAT THE M INISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA AFTER CO NSIDERING THE BAP, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULAT ED @ 2% OF TRADING ACTIVITY AND @ 3% ON MANUFACTURING ACTIVITY OR @ 2. 5% ACROSS THE BOARD (IN DIAMOND BUSINESS). THE LD. COMMISSIONER (APPEAL S) ALSO OBSERVED THAT THE ASSESSING OFFICER ALSO ADOPTED 3% ON PURCH ASES MADE FROM THE SAME GROUPS IN THE SUBSEQUENT ASSESSMENT ORDERS. HE NCE ,THE LD COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFIC ER TO RESTRICT THE ADDITION @ 3% ON THE PURCHASES MADE FROM MUMBAI I.E . FOR RS.6,38,83,622/- AND TO RESTRICT @ 2% OF PURCHASES OF RS. 53,35,21,911/-, PURCHASES WHICH WERE MADE UNDER FORM H AT SURAT. 7. WE HAVE NOTICED THAT NEITHER THE AO NOR LD. COMMISS IONER (APPEALS) REJECTED THE SALES OF THE ASSESSEE, OR STATEMENT OF ACCOUNTS MAINTAINED BY ASSESSEE. WE HAVE FURTHER NOTICED THAT NO INDEPENDE NT INQUIRY WAS MADE BY ASSESSING OFFICER BEFORE MAKING DISALLOWANCES. T HE ADDITIONS ARE BASED ON ESTIMATION BASIS. WE ARE OF THE CONSIDER ED OPINION THAT UNDER INCOME TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER NOTE THAT EVEN IN CASES WHERE THE WHOLE TRA NSACTION IS NOT VERIFIABLE DUE TO VARIOUS REASONS, THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION. THE HON BLE BOMBAY HIGH ITA NO. 5 877 & 6724/M/2016 POLAR STAR 8 COURT IN THE CASE OF CIT VS. HARIRAM BHAMBANI IN ITA NO.313 OF 2013 DECIDED ON 04.02.15 HELD THAT THE REVENUE IS NOT EN TITLED TO BRING THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PRO FIT ATTRIBUTABLE ON THE TOTAL UNRECORDED TRANSACTION CAN BE SUBJECT TO INCO ME TAX. AFTER CONSIDERING THE FACTS AND RIVAL CONTENTIONS OF THE PARTIES, WE ARE OF THE OPINION THAT IN ORDER TO FULFIL THE GAP OF REVENUE LEAKAGE THE DISALLOWANCE OF REASONABLE PERCENTAGE OF IMPUGNED PURCHASE WOULD MEET THE END OF JUSTICE. THUS, WE ARE OF THE OPINION THAT DISALLOW ANCE @ 3% ON ALL BOGUS PURCHASES SHOWN FROM THE ALLEGED HAWALA DEALER WOUL D MEET THE END OF JUSTICE. WE DIRECT THE ASSESSING OFFICER ACCORDINGL Y. 8. IN THE RESULT GROUNDS OF APPEAL RAISED BY ASSESSEE IN ITS APPEAL IS DISMISSED. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSED. RESULTANTLY, THE GROUND NO.1 RAISED IN REVENUES APPEAL IS PARTLY ALLOWED. 10. GROUND NO.2 IN REVENUE APPEAL RELATES TO DELETING T HE ADDITION OF RS.39,59,626/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF FOREIGN EXCHANGE FORWARD CONTRACT. THE LD DR FOR THE REVENU E SUPPORTED THE ORDER OF ASSESSING OFFICER AND WOULD ARGUE THAT THE ADDITION WAS WRONGLY DELETED BY LD COMMISSIONER (APPEALS). IT WAS ARGUED THAT LOSS ARE NOTIONAL IN NATURE AND WAS NOT ALLOWABLE. ON THE OT HER HAND THE LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF COMMISSIONER (A PPEALS). IT WAS FURTHER ARGUED THAT THE LD CIT(A) FOLLOWED VARIOUS DECISIONS OF TRIBUNAL ITA NO. 5 877 & 6724/M/2016 POLAR STAR 9 AND SUPERIOR COURTS WHILE GRANTING RELIEF TO THE A SSESSEE. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE SEEN THAT THE LD COMMISSIONER (APPEALS) HAS ALLOWED FOREIGN EXCHANGE FLUCTUATION LOSS BY FOLLOWING THE DECISION OF TRIBUNAL IN BHAVANI JAMES VERSUS ACIT I N ITA 2855 /M/2010 DATED 30 /03/2011 AND THE DECISION OF SPECI AL BENCH IN CASE OF DCIT VERSUS BANK OF BAHRAIN. WE HAVE SEEN THAT THE FINDING OF BRANDED COMMISSIONER (APPEALS) IS BASED ON THE VARIOUS DECI SION OF TRIBUNAL. HENCE WE DO NOT FIND ANY ILLEGALITY AND INFIRMITY I N THE ORDER PASSED BY LD COMMISSIONER (APPEALS). IN THE RESULT THE GROUND OF APPEAL RAISED BY REVENUE IS DISMISSED. 11. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLO WED. ORDER PRONOUNCED ON 5 TH DAY OF SEPTEMBER 2017 IN OPEN COURT. SD/- SD/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 05/09/2017 S.K.PS 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/