RAJESH HIRACHAND DESAI, MUMBAI V. ITO 32(3)(1), MUMBAI

ITA 6881/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8154 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 24-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Rejection of books of accounts
• Section: 143(3); 133(6); 32; 148

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI C.N. PRASAD JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 6881/ MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10) SHRI. RAJESH HIRACHAND DESAI, B/15, BAIDYANATH DHAM, 3 RD FLOOR, TPS III, ROO M NO.5, VAZIRA NAKA, BORIVALI (W ), MUMBAI 400092. / V. ITO - 32(3)(1) MUMBAI ./ PAN : AABPD1684L ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: MS. RUCHI M. RATHOD REVENUE BY : SHRI. PURUSHO TTAM KUMAR / DATE OF HEARING : 11.12.2017 / DATE OF PRONOUNCEMENT : 21 .12.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 6881/MUM/2016 FOR ASSESSMENT YEAR 2009 - 10, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 12 .09.2016 PASSED BY LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 44, MUMB AI (HEREINAFTER CALLED THE CIT(A)) FOR ASSESSMENT YEAR 2009 - 10, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 27.03.2015 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) R.W.S 147 OF TH E INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A. NO. 6881/MUM/2016 2 1. LEARNED CIT(APPEAL) ERRED IN CONFIRMING THE ENTIRE ADDITIONS MADE BY THE AO FOR AN AMOUNT OF RS.12683094/ - AND ERRED IN TREATING THE SAME AS BOGUS PURCHASE. 2. LEARNED ASSESSING OFFICER ERRED IN REJECTING THE BOOKS OF ACCOUNT ON SUMMARISE (SIC SURMISES) AND CONJECT URE BASIS AND LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE SAME. 3. THE APPELLANT CRAVES TO LEAVE, TO AMEND, ALTER, TO VARY OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS AS DEALER IN IRON & STEEL OPERATING A PROPRIETARY CONCERN IN THE N AME OF M/S. DESAI IRON & STEEL C OMPANY . THE RETURN OF INCOME WAS FILED BY ASSESSEE FOR AY 2009 - 10 ON 29 - 09 - 2009 DECLARING TOTAL INCOME OF RS. 10,70,530/ - . THE REVENUE FRAMED A N SCRUTINY ASSESSMENT U/S 143(3) VIDE ORDERS DATED 23 - 12 - 2011 WHEREIN THE INCOME ASSESSED WAS RS. 12,43,950/ - AS AGAINST RETURNED INCOME OF RS. 10,70,530/ - . SUBSEQUENTLY, I NFORMATION WAS RECEIVED BY THE AO FROM SALES TAX D EPARTMENT AND DGIT (INV), MUMBAI THAT SOME BUSINESSMAN HAD INDULGED IN ACCEPTANCE OF THE BOGUS PURCHASE BILLS FROM THE BOGUS HAWALA DEALERS. THE INVESTIGATION WING CARRIED OUT DETAIL ED INVESTIGATION WITH RESPECT TO THE INFORMATION RECEIVED FROM S ALES TAX DEPARTMENT THAT CERTAIN ENTITIES AS DETAILED BELOW ARE ENGAGED IN PROVIDING HAWALA BOGUS BILLS FOR COMMISSION WITHOUT SUPPLYING THE MATERIAL PHYSICALLY AND THE ASSESSEE WAS THE ONE OF THE BENEFICIARIES OF SUCH BOGUS BIL LS ISSUED BY THE FOLLOWING PARTIES: - TIN NAME OF THE PART Y AMOUN T 2 75306 2 3900V CENTURI A N SALES CORPORATION 777 , 713/ - 27750595164V DEEP ENTERPRISES 13 , 664 , 430 / - 2 7480539 2 95V JAI MA TA DI TRADING CO 7 , 807 , 791 / - 27 940584 72 9V KOTSONS I M PEX PRI VA TE L IMI TED 5 ,2 51 , 9 3 8 / - 27600648257V NIDDHISH IMPEX PVT LTD 10 , 015 , 750 / - 2 7020680974V ROHIT ENTERPRISES 8 , 404 , 274 / - 2 7660660931 V SHREE SAL TRADING CO 7 , 064,083/ - 27500537441 V SKAND INDUSTRIES 6,414,236 / - 27410583032V TARA ENTERPRISES 8 , 544 , 724 / - 27600666493V TORAL ENTERPRISES 7 , 254 , 040 / - 27440688 2 12V TULSIANI RADING PRIVATE LIMITED 5 , 420 , 266 / - 27860613194V V3 ENTERPR ISE S 3 , 934 , 715/ - TOTAL 8 , 45 , 53 , 960 / - I.T.A. NO. 6881/MUM/2016 3 THE ASSESSMENT WAS REOPENED WITHIN THE MEANING OF SECTION 147 AND AS A CONSEQUENCE THEREOF NOTIC E U/S. 148 DATED 03.06.2013 WAS ISSUED BY THE AO AFTER RECORDING REASON FOR REOPENING OF THE ASSESSMENT , WHICH NOTICE U/S 148 WAS DULY SERVED ON THE ASSESSEE. THE ASSESSEE DID NOT CHALLENGED REOPENING OF THE ASSESSMENT U/S 147 OF THE 1961 ACT BY REVENUE. THESE TWELVE PAR TIES FROM WHOM THE ASSESSEE ALLEGEDLY PURCHASED MATERIAL HAVE ADMITTED IN THE STATEMENT RECORDED ON OATH BEFORE SALES TAX AUTHORITIES THAT THEY HAVE NOT DONE ANY BUSINESS AS WELL THERE WAS NO ACTUAL DELIVERY OF MATERIAL TO THE PURCHASING PARTIES. THE NOTIC ES U/S. 133(6) WERE ISSUED BY THE AO TO THESE TWELVE ALLEGED BOGUS HAWALA DEALERS WHEREIN ALL THE NOTICES RETURNED UN - SERVED BY THE POSTAL AUTHORITIES . THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE THE SE PARTIES BUT THE ASSESSEE COULD NOT PRODUCE THE SE PART IES. THE ASSESSEE SUBMITTED THAT PAYMENTS FOR THESE PURCHASES WERE MADE BY ACCOUNT PAYEE CHEQUES. THE A.O ACCEPTED THAT THE SALES WERE GENUINE AND THE ASSESSEE WAS IN THE POSSESSION OF THE GOODS . IT WAS HELD BY THE AO THAT THE ASSESSEE PURCHASED THE GOOD S FROM THE GREY MARKET AND TO COVER UP SALES THE ASSESSEE HAS OBTAINED BILLS FROM THE SAID HAWALA DEALERS. THE AO REJECTED THE PURCHASE RATE MENTIONED IN THE BILLS AS ACCORDING TO THE AO THE GOODS WERE PURCHASED FROM GREY MARKET AT A MUCH LOWER PRICE BUT THE INVOICES WERE OBTAINED FROM THESE BOGUS DEALERS AT MUCH HIGHER PRICE. THE A.O REJECTED THE BOOKS OF ACCOUNTS U/S. 145(3) AND MADE THE ADDITION TO THE TUNE OF 15% OF THE TOTAL AMOUNT OF THE BOGUS PURCHASES OF RS. 8,45,53,960/ - WHICH LED TO THE ADDITION TO THE TUNE OF RS.1,26,83,094/ - TOWARDS UNPROVED /NON GENUINE PURCHASES WHICH WAS ADDED TO THE TOTAL INCOME RETURNED , WHICH ADDITION S WERE LATER UPHELD BY LEARNED CIT( A ) VIDE APPELLATE ORDERS DATED 12 - 09 - 2016 AND THE APPEAL OF THE ASSESSEE STOOD DISMISSED BY LEARNED CIT(A) . 4. AGGRIEVED BY THE APPELLATE ORDER DATED 12 - 09 - 2016 PASSED BY LEARNED CIT(A), THE ASSESSEE HAS COME IN AN APPEAL BEFORE THE TRIBUNAL . THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THERE WAS A N ALLEGATION OF BOGUS PURCHASE S MADE BY THE ASSESSEE FROM 12 PARTIES TO THE TUNE OF RS. 8.45 CRORES . I T WAS SUBMITTED THAT THE A.O . HAS MADE THE ADDITION S TO THE TUNE OF 15% OF THE SAID ALLEGED BOGUS PURCHASES WHICH WAS LATER CONFIRMED BY LEARNED CIT - A . I T WAS SUBMITTE D THAT THE INFORMATION WAS RECEIVED BY REVENUE FROM MAHARASHTRA VAT DEPARTMENT THAT THESE TWELVE PARTIES HAVE I.T.A. NO. 6881/MUM/2016 4 ISSUED BOGUS INVOICES WITHOUT SUPPLYING ANY MATERIAL AND THEIR OWNERS HAVE GIVEN STATEMENT BEFORE THE VAT DEPARTMENT THAT THEY WERE INDULGING IN I SSUING BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL AND BASED UPON THE SAID INFORMATION THE ADDITIONS WERE MADE BY THE AO . IT WAS SUBMITTED THAT MAHARASHTRA VAT ON IRO N AND STEEL WAS TO THE TUNE OF 4 % . IT WAS SUBMITTED THAT STOCK RECONCILIATION STATEMENT W AS DULY SUBMITTED BEFORE THE AUTHORITIES BELOW. IT WAS ALSO SUBMITTED THAT THESE TWELVE DEALERS HAVE IN - FACT NOT PAID VAT TO THE SALES TAX DEPARTMENT WHICH LED TO ACTION BY SALES TAX DEPARTMENT AGAINST THESE DEALERS. IT WAS SUBMITTED THAT IN FACT THE ASSES SEE WAS COMPELLED BY MAHARASHTRA VAT/SALES TAX DEPARTMENT TO MAKE PAYMENT FOR THE SAID VAT WHICH WAS NOT PAID BY THE SAID TWELVE DEALERS TO THE GOVERNMENT OF MAHARASHTRA . IT WAS SUBMITTED THAT THESE TWELVE PARTIES COULD NOT BE LOCATED AND HENCE COULD NOT BE PRODUCED BEFORE THE AUTHORITIES BELOW. IT WAS ALSO SUBMITTED THAT NOTICES U/S 133(6) ISSUED BY THE AO TO THESE TWELVE PARTIES WHICH WERE RETURNED UN - SERVED BY POSTAL AUTHORITIES . THE LD. COUNSEL FOR THE ASSESSEE BROUGHT ON RECORD NOTICE OF DEM AND DATED 31 - 03 - 2013 U/S 32 OF MAHARASHTRA VALUE ADDED TAX ACT , 2002 ALONG WITH ORDER OF ASSESSMENT DATED 31 - 03 - 2013 PASSED BY ACST(MUM - INV - D - 004), MUMBAI WHEREIN TOTAL AMOUNT DUE OF RS. 49,66,208/ - WAS COMPUTED AS PAYABLE BY THE ASSESSEE BY MAHARASHTRA VAT AUTHORITIES TOWARDS SALES TAX, INTEREST AND PENALTY FOR THE FINANCIAL YEAR 2008 - 09 ON ACCOUNT OF THE DEFAULT OF THESE DEALERS . THESE DOCUMENTS ARE PLACED IN FILE. THE ASSESSEE HAS ALSO PLACED ON RECORD SETTLEMENT ORDER WITH MAHARASHTRA VAT DEPARTMENT UNDER MAHARASHTRA SETTLEMENT OF ARREARS IN DISPUTES ACT, 2016 TO REFLECT SETTLEMENT ENTERED INTO BY THE ASSESSEE WITH THE MAHARASHTRA S ALES TAX DEPARTMENT WHEREIN INTEREST OF RS. 12.77 LACS AND PENALTY OF RS. 16.31 LACS OUT OF TOTAL DEMAND OF RS. 49.66 LAC S STOOD WAIVED WHICH ARE PLACED ON RECORD ALONG WITH PAID CHALLANS FOR RS. 28.04 LACS FO R PERIOD 2008 - 09 . I T WAS SUBMITTED THAT THE LIABILITY OF VAT WHICH WAS ADDITIONALLY PAID BY THE ASSESSEE TO THE TUNE OF RS. 16.31 LACS WAS AN ADDITIONAL LIABILITY OWING TO FAILURE OF THESE TWELVE DEALERS WHICH HAS REDUCED THE PROFITS TO THAT EXTENT WHICH THE ASSESSEE COULD HAVE EARNED AND THIS SHOULD BE TAKEN INTO ACCOUNT WHILE ESTIMATING PROFIT S UNDER THE ACT . I T WAS SUBMITTED RECONCILIATION STATEMENT WAS DULY SUBMITTED AND G.P OF 2.64% WAS DECLARED BY THE ASSESSEE . THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE ITAT, MUMBAI IN NIKHIL KISHORE GANDHI V. ACIT IN ITA NO. 315/MUM/2016 VIDE ORDER S DATED I.T.A. NO. 6881/MUM/2016 5 04.08.2017 WHEREIN THE ASSESSEE CLAIMED THAT UNDER SIMILAR CIRCUMSTA NCES , THE TRIBUNAL HAS UPHELD THE ADDITION BY APPLYING PROFIT RATIO OF 5% OF THE BOGUS PURCHASES. L D. DR ON OTHER HAND RELIED UPON THE ORDER OF LEARNED CIT - A. 5 . WE HAVE CONSIDERED RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD . W E HAVE OBSERVED THAT THE ASSESSEE IS DEALER IN IRON & STEEL AND IS PROPRIETOR OF THE CONCERN NAME LY M/S. DESAI IRON & S TEEL C OMPANY . INFORMATION WAS RECEIVED BY A.O FROM DGIT (INV.) AND INVESTIGATION WING OF MAHARASHTRA SALES TAX DEPARTMENT TH AT THE ASSESSEE IS BENEFICIARY OF BOGUS PURCHASES MADE FROM FOLLOWING TWELVE PARTIES TO THE TUNE OF 8.4 5 CRORES , AS DETAILED HEREUNDER .: - TIN NAME OF THE PART Y AMOUNT 2 75306 2 3900V CENTURI A N SALES CORPORATION 777 , 713/ - 27750595164V DEEP ENTERPRISES 13 , 664 , 430 / - 2 7480539 2 95V JAI MA TA DI TRADING CO 7 , 807 , 791 / - 27 940584 72 9V KOTSONS I M PEX PRI VA TE L IMI TED 5 ,2 51 , 9 3 8 / - 27600648257V NIDDHISH IMPEX PVT LTD 10 , 015 , 750 / - 2 7020680974V ROHIT ENTERPRISES 8 , 404 , 274 / - 2 7660660931 V SHREE SAL TRADING CO 7 , 064,083/ - 27500537441 V SKAND INDUSTRIES 6,414,236 / - 27410583032V TARA ENTERPRISES 8 , 544 , 724 / - 27600666493V TORAL ENTERPRISES 7 , 254 , 040 / - 27440688 2 12V TULSIANI RADING PRIVATE LIMITED 5 , 420 , 266 / - 27860613194V V3 ENTERPR ISE S 3 , 934 , 715/ - TOTAL 8 , 45 , 53 , 960 / - THE SAID PARTIES IN THEIR STATEMENT RECORDED BEFORE THE MAHARASHTRA SALES TAX AUTHORITIES HAVE CONFIRMED THAT THEY ONLY ISSUED BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL. NOTICES WERE ISSUED BY THE AO U/S. 133(6) TO AFORE SAID 12 PARTIES WHICH RETURNED UN - SERVED BY POSTAL AUTHORITIES . THE ASSESSEE WAS ASKED BY THE AO TO PRODUCE THE ABOVE PARTIES WHICH ASSESSEE COULD NOT PRODUCE AS THE PARTIES COULD NOT BE LOCATED. T HE INVESTIGATION S HAD REVEALED THAT THESE 12 PARTIES HAVE ISSUED BOGUS BIL LS WITHOUT SUPPLYING ANY MATERIAL TO THE ASSESSEE TO THE TUNE OF 8.4 5 CRORE S. T HE AUTHORITIES BELOW HAVE CONCLUDED THAT THE SALES REPORTED BY THE ASSESSEE WERE GENUINE WHEREIN IT WAS CONCLUDED THAT THE ASSESSEE WAS IN PHYSICAL POSSESSION OF THE MATERIAL SO LD WHICH WAS PURCHASED FROM GREY MARKET AT LOWER PRICE WHILE BILLS WERE OBTAINED FROM THESE HAWALA DEALERS W HO HAVE ISSUED ONLY BOGUS BILLS WITHOUT SUPPLYING ANY MATERIAL PHYSICALLY TO THE ASSESSEE TO THE TUNE OF I.T.A. NO. 6881/MUM/2016 6 RS. 8.4 5 CRORES. THE ASSESSEE DULY FURNISHE D STOCK RECONCILIATION STATEMENT BEFORE THE AO BUT HOWEVER COU LD NOT PRODUCE STOCK REGISTER AND PROOF OF ACTUAL DELIVERY OF GOODS WHICH LED TO THE ADDITION TO THE TUNE OF 15% OF THE ALLEGED BOGUS PURCHASES BY THE AO WHILE FRAMING ASSESSMENT U/S 143(3) R.W. S. 147 WHICH WAS LATER CONFIRMED BY LD. CIT - A. THE ASSESSEE HAS NOW CLAIMED BEFORE US THAT THE SAID DEALERS HAVE INFACT DEFAULTED IN MAKING PAYMENT OF VAT TO MAHARASHTRA GOVERNMENT WHICH LED TO INVESTIGATION BEING CONDUCTED BY THE MAHARASHTRA VAT AUTHORIT IES AGAINST THESE DEALERS AS INPUT CREDIT OF VAT ON THESE PURCHASES WAS CLAIMED BY BUYING PARTIES INCLUDING ASSESSEE WHILE NO PAYMENT OF VAT COLLECTED BY THESE DEALERS FROM BUYING PARTIES WAS MADE TO THE GOVERNMENT OF MAHARASHTRA . IT IS NOW CLAIMED THAT T HE ASSESSEE HAS NOW DULY PAID SALES TAX AND INTEREST ON THE SAID ALLEGED BOGUS PURCHASES FROM THESE TWELVE DEALERS . THE ASSESSEE HAS NOW PLACED ON RECORD NOTICE OF DEMAND DATED 31 - 03 - 2013 U/S 32 OF MAHARASHTRA VALUE ADDED TAX ACT , 2002 ALONG WITH ORDER OF ASSESSMENT DATED 31 - 03 - 2013 PASSED BY ACST(MUM - INV - D - 004), MUMBAI WHEREIN TOTAL AMOUNT DUE OF RS. 49,66,208/ - WAS COMPUTED AS PAYABLE TOWARDS SALES TAX, INTEREST AND PENALTY FOR THE FINANCIAL YEAR 2008 - 09 BY THE ASSESSEE BY MAHARASHTRA VAT DEPARTMENT ON ACCOUNT OF THE DEFAULT OF THESE TWELVE DEALERS . THE ASSESSEE HAS ALSO PLACED ON RECORD SETTLEMENT ORDER WITH MAHARASHTRA VAT DEPARTMENT UNDER MAHARASHTRA SETTLEMENT OF ARREARS IN DISPUTES ACT, 2016 TO REFLECT SETTLEMENT ENTERED INTO BY THE ASSESSEE WITH THE MAHARASHTRA SALES TAX DEPARTMENT WHEREIN INTEREST OF RS. 12.77 LACS AND PENALTY OF RS. 16.31 LACS STOOD WAIVED OUT OF TOTAL DEMAND OF RS. 49.66 LACS WHILE THE REST OF THE DEMAND WAS AGREED BY THE ASSESSEE TO BE PAID , AND PAID CHALLANS FOR RS. 28.04 L ACS FOR PERIOD OF FINANCIAL YEAR 2008 - 09. IT IS CLAIMED THAT THE LIABILITY OF VAT WHICH WAS ADDITIONALLY PAID BY THE ASSESSEE TO THE TUNE OF RS. 16.31 LACS AND ALSO INTEREST WAS AN ADDITIONAL LIABILITY OWING TO FAILURE OF THESE TWELVE DEALERS WHICH HAS REDUCED THE PROFITS TO THAT EXTENT WHICH THE ASSESSEE COULD HAVE EARNED BY OBTAINING THE MATERIAL FROM GREY MARKET AND THIS SHOULD BE TAKEN INTO ACCOUNT WHILE ESTIMATING PROFIT UNDER THE ACT. THE ASSESSEE HAS SUBMITTED RECONCILIATION STATEMENT OF THE STOCK AND IT IS CLAIMED THAT G.P OF 2.64% WAS DECLARED BY THE ASSESSEE . THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE ITAT, MUMBAI IN NIKHIL KISHORE GANDHI V. ACIT IN ITA NO. 3 15/MUM/2016 VIDE ORDERS DATED 04.08.2017 WHEREIN THE ASSESSEE CLAIMED THAT UNDER SIMILAR CIRCUMSTANCES, THE TRIBUNAL I.T.A. NO. 6881/MUM/2016 7 HAS UPHELD THE ADDITION BY APPLYING PROFIT RATIO OF 5% OF THE BOGUS PURCHASES BECAUSE THE SAID SELLING DEALERS HAVE NOT DEPOSITED THE VAT W ITH THE SALES TAX AUTHORITIES . THE SAID ORDER OF THE TRIBUNAL I S REPRODUCED AS UNDER: - THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A) - 44, MUMBAI, IN APPEAL NO. CIT(A) - 44/ITO32(2)(4)/ITA - 133/2014 - 15 DATED 15 - 12 - 2015. THE ASSESSMENT WA S FRAMED BY ITO 32(2)(4), MUMBAI FOR THE A.Y. 2009 - 10 VIDE ORDER DATED 27 - 02 - 2015 UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) C ONFIRMING THE ADDITION MADE BY APPLYING THE PROFIT RATE AT 12.5% OF THE BOGUS PURCHASE. FOR THIS ASSESSEE HAS RAISED FOLLOWING TWO GROUNDS: - 1. LEARNED CIT (APPEAL) ERRED IN CONFIRMING THE ENTIRE ADDITIONS MADE BY THE AO FOR AN AMOUNT OF RS 29,63,527/ - AND ERRED IN TREATING THE SAME AS BOGUS PURCHASE. 2. THE LEARNED ASSESSING OFFICER ERRED IN REJECTING THE BOOKS OF ACCOUNT ON SUMMARIZE AND CONJECTURE BASIS AND LEARNED CIT (APPEAL) ERRED IN CONFIRMING THE SAME.. 3. BRIEFLY STATED FACTS ARE THAT THE ASSES SEE IS A RUNNING PROPRIETY CONCERN DEALING IN IRON AND STEEL IN THE NAME & STYLE OF M/S SAI STEEL. THE AO RECEIVED INFORMATION FROM DGIT (INVESTIGATION), WHO IN TURN RECEIVED INFORMATION FROM SALES TAX DEPARTMENT, MUMBAI THAT THE ASSESSEE HAS MADE PURCHASE S FROM HAWALA PARTIES, AS LISTED IN HAWALA DEALERS BY THE MAHARASHTRA SALES TAX DEPARTMENT WHO ARE PROVIDING BOGUS BILLS OF PURCHASE AS ADMITTED BY THESE HAWALA DEALERS IN THEIR DEPOSITION BEFORE THE AUTHORITIES. THE FOLLOWING ARE DETAILS OF BOGUS PURCHASE : - 4. THE AO ISSUED NOTICED UNDER SECTION 133(6) TO THE PARTIES WHICH RETURNED BACK WITH THE REMARK AS LEFT AND ASSESSEE FAILED TO PRODUCE SL NO. NAME OF PARTY AMOUNT 1 . RK ISTAP 85,17.525/ - 2 . SHREE NAKODAJI IMPEX 14,90,727/ - 3 . BHAVANI TRADE LINK 67,60,936/ - 4 . ENTECH ENTERPRISES 10,34,894/ - 5 . GM INTERNATIONAL 15,17,354/ - 6 . GHATALIA STEEL/DIVINE ENTERPRISES 43,87,237/ - 7 . TOTAL 2,37,08,218/ - I.T.A. NO. 6881/MUM/2016 8 THESE PARTIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND DURING APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED ALL THE DOCUMENTARY EVIDENCES SUCH AS INWARD REGISTER, STOCK REGISTER, PAYMENT RECEIVED AGAINST SUCH SALES, RECEIPT OF MATERIAL PURCHASES, ACCOUNT PAYEE CHEQUE. IT WAS ALSO ARGUED THAT THE AO HAS NOT DOUBTED THE SALES AND IT IS NOT POSS IBLE TO EFFECT SALES WITHOUT PURCHASE BUT THE CIT(A) CONFIRMED THE ACTION OF THE AO AFTER CONSIDERING THE VARIOUS CASE LAWS INCLUDING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MANGILAL CHOUDHARY 229 TAXMAN 378 (RAJ) (2015) AND HE CONFIRMED THE ADDITION BY OBSERVING IN PARA 6.1 AS UNDER: - 6.1 IT IS SEEN FROM RECORD THAT THE A.O. HAS NOT MECHANICALLY DISALLOWED THE ENTIRE PURCHASES AMOUNTING TO RS. 2,37,08,218/ - . FURTHER HE HAS POINTED OUT THE APPARENT DEFICIENCIES IN THE BOOKS OF THE ASSESSEE AND HAD THEREAFTER REJECTED THE BOOKS OF THE APPELLANT BY INVOKING THE PROVISION OF SECTION 145(3) OF THE INCOME TAX ACT. WHEN THE BASIC DETAILS LIKE PURCHASES REMAIN UNVERIFIABLE, IT IS OPEN FOR THE A.O. TO REJECT THE BOOKS OF THE ASSESSE E. IN A RECENT JUDGEMENT, THE HONBLE RAJASTHAN HIGH COURT HAS REMARKED IN THE CASE OF CIT VS. MANGILAL CHOUDHARY 229 TAXMANN 378 (RAJ)(2015) THAT 'THE REJECTION OF ACCOUNTS WILL ALWAYS BE JUSTIFIED WHEN THE ACCOUNTS BOOKS ARE FOUND UNRELIABLE, INCORRECT O R INCOMPLETE FOR VALID REASONS.' THUS IT IS HELD THAT THE A.O. WAS RIGHT IN REJECTING THE BOOKS OF THE ASSESSEE. FURTHERMORE, AS STATED ABOVE, THE A.O. HAS HIMSELF ESTIMATED THE PROFIT RATE WHICH SHOULD HAVE ARISEN BECAUSE OF THE BOGUS PURCHASE RATHER THAN DISALLOWING THE ENTIRE PURCHASES. THE A.O. ALSO FAIRLY CONCEDED IN PARA 9.6 OF HIS ORDER THAT THERE CANNOT BE ANY SALES WITHOUT PURCHASES. THEREFORE, THE A.O. HAS MENTIONED THAT THE ASSESSEE DID MAKE PURCHASES, BUT AT A LOWER PRICE SO AS TO INCREASE HIS O VERALL PROFITS. SINCE THE A.O. HAS HIMSELF GIVEN SUBSTANTIAL RELIEF TO THE ASSESSEE BY A SPEAKING ORDER I DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE A.O. THE GROUNDS OF APPEAL NO.1 AND 2 ARE DISMISSED AND ACCORDINGLY ADDITION OF RS.29,63,527/ - IS CONFIRMED. 5. NOW, BEFORE US, ASSESSEE CONTENDED THAT ONLY PROFIT ELEMENT IS HIGHER AS THE ASSESSEE DEALS IN IRON AND STEEL AND ASSESSEE IS DISCLOSED PROFIT AT 2%. THE LEARNED COUNSEL BEFORE US, MADE SUBMISSIONS THAT THIS 2% HAS ALREADY BEEN INCLUDED IN BOOKS OF ACCOUNT ON THE SALES OF THE BOGUS PURCHASE. ACCORDINGLY, HE REQUESTED FOR REDUCTION IN PROFIT RATE AND ALSO IN VIEW OF THE FACT THAT PROFIT MARGINS IN THE NATURE OF TRADE OF IRON AND STEEL IS VERY LOW. 6. WE HAVE CONSIDERED THE ISSUE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND REASONABLE PROFIT RATE OF 5% WILL MEET THE END OF JUSTICE FOR THE REASON THAT THE ASSESSEE HAS ALREADY DECLARED PROFIT @ 2% ON THE SALE MADE OUT OF BOGUS PURCHASES AND ASSESSEE ALSO FILED THE PROOFS OF PAYMENTS OF SALES TAX/ VAT TO THE MAHARASHTRA SALES TAX DEPARTMENT AND ONCE THE ASSESSEE HAS PAID I.T.A. NO. 6881/MUM/2016 9 THE SALES TAX/ VAT TO THE GOVERNMENT, THE PROFIT WILL AUTOMATICALLY DECLINE. IN VIEW OF THESE REASONS, WE DIRECT THE AO TO RE - COMPUTE INCOME AFTER APPLYIN G PROFIT RATE @ 5% OF THE BOGUS PURCHASE AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED . WE HAVE OBSERVED THAT THE FACTUAL MATRIX IN ITA NO. 315/MUM/2016 ARE ALMOST SIMILAR AS IN THE INSTANT APPEAL AND R ESPECTFULLY FOLLOWING THE SAID ORDER OF THE ITAT WE UPHOLD ADDITION IN THE INSTANT CASE BY DIRECT ING THE AO TO RE - COMPUTE INCOME AFTER APPLYING PROFIT RATE @ 5% OF THE BOGUS PURCHASE S TO THE TUNE OF RS. 8.45 CRORES AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . WE WOULD LIKE TO CLARIFY THAT THE CLAIM OF THE ASSESSEE FOR PAYMENT OF ADDITIONAL VAT AND INTEREST ON THESE ALLEGED BOGUS HAWALA PURCHASES FROM TWELVE DEALERS SHALL BE VERIFIED BY THE AO AS THE SAID CLAIM IS SET UP FOR THE FIRST TIME BEFOR E THE TRIBUNAL AND ALSO SINCE WE HAVE FACTORED THE ADDITIONAL VAT AND INTEREST ETC. PAID BY THE ASSESSEE ON SUCH ALLEGED HAWALA PURCHASES WHILE ESTIMATING INCOME ON THE SAID ALLEGED HAWALA PURCHASES BY APPLYING PROFIT RATE @5% OF THE ALLEGED BOGUS PURCHASE S OF RS. 8.45 CRORES FOR THE IMPUGNED A SSESSMENT YEAR, THE DEDUCTION ON ACCOUNT OF ADDITIONAL VAT, INTEREST ETC PAID BY THE ASSESSEE ON THESE ALLEGED BOGUS PURCHASES CANNOT BE AVAILED ONCE AGAIN IN THE YEAR OF DETERMINATION OF THE ADDITIONAL LIABILITY BY MAHARASHTRA VAT AUTHORITIES OR IN THE YEAR OF PAYMENT THEREOF BY THE ASSESSEE AS THE CASE MAY BE , AS OTHERWISE IT WILL LEAD TO DOUBLE DEDUCTION TO THE ASSESSEE OF THE SAME EXPENSES WHICH IS NOT PERMISSIBLE. THE AO SHALL VERIFY THIS ASPECT ALSO BEFORE GIVIN G EFFECT TO OUR ORDER. THE AS SESSEE GETS PART RELIEF. WE ORDER ACCORDINGLY. 6 . IN THE RESULT APPEAL OF THE ASSESSEE IN I.T.A. NO. 6881/MUM/2016 FOR ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 .12.2017 21 .12.2017 SD/ - SD/ - ( C.N. PRASAD ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER I.T.A. NO. 6881/MUM/2016 10 MUMBAI, DATED: 21 .12.2017 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI