ITO 18(1)(2), MUMBAI V. PRAVIN U PARMAR (JAIN ), MUMBAI

ITA 6906/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1404 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Bogus purchase; Corroborative evidences; Accommodation entries
• Section: 143(3); 133A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G S PANNU, AM, & SHRI SAKTIJIT DEY, JM ITA NO. 6342/MUM/2014 ASSESSMENT YEAR : 2010-11 PRAVIN U PARMAR (JAIN) M S UNIQUE INDL CORP., FLAT NO.10 DSK TRILOK CHS LTD., 469 K W CHITLE MARG, DADAR(W), MUMBAI 400 028. PAN AACPJ8270B VS. ITO 18(1)(2) MUMBAI (APPELLANT) (RESPONDENT) & ITA NO. 6906/MUM/2014 ASSESSMENT YEAR : 2010-11 ITO 18(1)(2) MUMBAI VS. PRAVIN U PARMAR (JAIN) MUMBAI PAN AACPJ8270B (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI PRAMOD KUMAR PARIDA FOR THE REVENUE : SHRI RAJAT MITTAL (CIT-DR) DATE OF HEARING : 20 .03.2017 DATE OF PRONOUNCEMENT : 05.04 .2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPART MENT ARE AGAINST A COMMON ORDER DATED 14.08.2014 OF LEARNED CIT(A) -29 , MUMBAI FOR A.Y. 2010-11. ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 2 2. THE COMMON ISSUE ARISING FOR CONSIDERATION IN TH ESE APPEALS IS IN RELATION TO THE DECISION OF THE CIT(A) IN QUANTIFYI NG THE GROSS PROFIT @10% OF THE ALLEGED BOGUS PURCHASES AND RESTRICTING ADDITIO N TO THAT AMOUNT. 3. BRIEFLY, THE FACTS ARE, THE ASSESSEE, AN INDIVID UAL IS CARRYING ON BUSINESS IN MANUFACTURING AND SALE OF KITCHENWARE PRODUCTS T HROUGH ITS PROPRIETARY CONCERN M/S. UNIQUE INDUSTRIAL CORPORATION. FOR TH E PURPOSE OF ITS MANUFACTURING ACTIVITY THE ASSESSEE HAS SET UP A FA CTORY AT VILLAGE ASANGAON IN THANE DISTRICT. IN THE COURSE OF ASSESSMENT PRO CEEDINGS, FOR VERIFYING THE GENUINENESS OF THE PURCHASES CLAIMED TO HAVE BEEN M ADE FROM CERTAIN PARTIES, THE AO ISSUED NOTICES U/S. 133(6) TO FOUR PARTIES VIZ. SHREE GANESH TRADING CO., M/S. BALAJI BOX INDUSTRIES, JAY TRADER S & COLOUR CORNER. AS OBSERVED BY THE AO, THE NOTICES ISSUED U/S. 133(6) WERE RETURNED UN-SERVED BY THE POSTAL AUTHORITIES. ON THE BASIS OF INFORMA TION RECEIVED FROM THE SALES-TAX AUTHORITIES THROUGH DGIT (INV) MUMBAI, HE FOUND THAT ONE OF THE PARTY VIZ. SHREE GANESH TRADING FROM WHOM ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES OF RS.1,88,27,754/- IS A HAWALA DEAL ER PROVIDING ACCOMMODATION ENTRIES. HE ALSO FOUND THAT A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE IN FEBRUARY 2013, AND IN THE COURSE OF SURVEY WHEN THE ASSESSEE WAS CONFRONT ED THE FACT OF BOGUS PURCHASES, HE STATED THAT THE PURCHASES WERE MADE T HROUGH ONE AGENT AND HE WAS NOT ABLE TO RECOLLECT THE ADDRESS OF THE SAI D AGENT. HOWEVER, HE ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 3 PROMISED TO PRODUCE THE SAID AGENT AND THE CONCERNE D PARTIES WITHIN SEVEN DAYS. THE AO OBSERVED, INSPITE OF SUCH PROMISE, TH E ASSESSEE WAS UNABLE TO PRODUCE EITHER THE CONCERNED PARTIES OR THE AGENT. HE ALSO OBSERVED THAT THE ASSESSEE WAS UNABLE TO PRODUCE SUPPORTING EVIDENCE TO PROVE THE GENUINENESS OF THE PURCHASES. THE AO OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO PROVIDE QUANTITATIVE TALLY VIS-A-VIS MATERI AL CONSUMED IN PRODUCTION AND SALE. THUS, ON THE BASIS OF THE AFORESAID FACT S, THE AO ULTIMATELY CONCLUDED THAT THE PURCHASES AMOUNTING TO RS.1,88,2 7,754/- MADE FROM SHREE GANESH TRADING COMPANY ARE NOT GENUINE HENCE, ADDED BACK TO THE INCOME OF THE ASSESSEE. AS FAR AS PURCHASES MADE F ROM OTHER THREE PARTIES AS REFERRED TO HEREIN BEFORE, THE AO ALSO ADDED THE ENTIRE PURCHASES AMOUNTING TO RS.2,08,53,497/- BY TREATING THEM AS B OGUS. BEING AGGRIEVED OF SUCH ADDITIONS MADE BY THE AO, THE ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). 4. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISS IONS MADE BY THE ASSESSEE AND EXAMINING THE MATERIAL AVAILABLE BEFOR E HIM FOUND THAT THE AO HAS NOT RECORDED ANY FINDING IN THE ASSESSMENT ORDE R TO INDICATE THAT ANY INCRIMINATING DOCUMENTS REVEALING BOGUS PURCHASES W ERE FOUND IN THE PREMISES OF THE ASSESSEE OR ANY UNACCOUNTED STOCKS WERE FOUND DURING THE COURSE OF SURVEY CONDUCTED BY THE DEPARTMENT. HE O BSERVED THAT THE AO HAS NOT CARRIED OUT ANY INDEPENDENT INQUIRY TO ESTABLIS H THAT THE PURCHASES ARE ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 4 BOGUS EXCEPT RELYING UPON THE CONCLUSION OF THE SAL ES TAX AUTHORITIES. HE ALSO NOTED THAT THE AO HAS NOT DOUBTED THE SALES EF FECTED BY THE ASSESSEE. FROM THE DETAILS SUBMITTED HE FOUND THAT GENERALLY SALES MADE BY THE ASSESSEE ARE EITHER TO THE GOVERNMENT AGENCIES OR B IG CORPORATE ENTITIES. THEREFORE, THE AO COULD HAVE EASILY VERIFIED FROM T HE CONCERNED PARTIES REGARDING THE SALES MADE BY THE ASSESSEE; WHEREAS, THE AO MERELY RELYING ON THE FACT THAT NOTICES ISSUED U/S. 133(6) HAS BEEN R ETURNED UN-SERVED, TREATED THE PURCHASES AS BOGUS. THE CIT(A) ALSO NOTICED TH AT THE ASSESSEE HAS GIVEN QUANTITATIVE TALLY OF PURCHASES, CONSUMPTION AND SA LES, WHICH WERE NOT FOUND TO BE DEFECTIVE. HE FOUND THAT THE PURCHASES MADE OF THE DISPUTED AMOUNT ARE AVAILABLE WITH THE ASSESSEE AND ENTERED INTO IT S BOOKS OF ACCOUNT AS WELL AS PART OF ITS INVENTORY. HE ALSO NOTED THAT THE P AYMENT FOR SUCH PURCHASES WERE MADE BY CROSSED-CHEQUES AND HAVE BEEN DEBITED IN THE NAME OF CONCERNED PARTIES. THE LEARNED CIT(A) OBSERVED THA T THE REPORT OF THE INVESTIGATION WING CONTAINED NAME OF THE BOGUS PART IES BUT IT DOES NOT CONTAIN SALES MADE TO THE ASSESSEE. HE, THEREFORE, OBSERVED THAT MERELY BECAUSE CONCERNED PARTIES HAVE NOT CONFIRMED THE SA LES OR THEY ARE NOT AVAILABLE IN THE GIVEN ADDRESS, WILL NOT MAKE THE E NTIRE PURCHASES BOGUS. HE OBSERVED WHEN THE SALES/CONSUMPTION OF MATERIAL ARE NOT DOUBTED, THE PURCHASES CANNOT BE DISALLOWED ENTIRELY. HE FURTHE R OBSERVED THAT THOUGH, THERE CANNOT BE ANY DOUBT THAT THE ASSESSEE HAS PUR CHASED THE ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 5 GOODS/MATERIAL, THE DOUBT REMAINS REGARDING THE PUR CHASE PRICE SHOWN IN THE INVOICES. HE OBSERVED, SINCE THE BILLS RAISED BY T HOSE PARTIES ARE NOT VERIFIABLE, THE PURCHASE PRICE SHOWN IN THE INVOICE S RAISED BY THE CONCERNED PARTIES CANNOT BE ACCEPTED, AS, THERE IS EVERY POSS IBILITY THAT PURCHASES ARE OVER INVOICED TO REDUCE THE PROFITS, WHICH MAY HAVE IMPACT ON THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE. THE LEARNED CIT(A) RELYING UPON CERTAIN JUDICIAL PRECEDENTS, OBSERVED THAT IN SUCH CIRCUMST ANCES WHAT CAN BE ADDED IS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES TR EATED AS BOGUS. HE NOTED THAT FOR THE YEAR UNDER CONSIDERATION, THE AS SESSEE HAS SHOWN GROSS PROFIT RATE @ 6.3%. HE, THEREFORE, WAS OF THE VIEW THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE ESTIMATION OF GROSS PROFI T @10% OF THE TOTAL BOGUS PURCHASES WOULD BE FAIR AND REASONABLE. ACCORDINGL Y, HE WORKED OUT THE ADDITION TO BE MADE BY APPLYING SUCH GROSS PROFIT A T RS.39,68,125/-. THUS, WHILE THE ASSESSEE IS CHALLENGING THE ESTIMATION OF GROSS PROFIT @10%, THE DEPARTMENT IS SEEKING RESTORATION OF THE ADDITION M ADE BY THE AO. 5. THE LEARNED AR REITERATING THE STAND TAKEN BEFOR E THE DEPARTMENTAL AUTHORITIES, SUBMITTED THAT THE ASSESSEE NOT ONLY B EFORE THE AO BUT ALSO BEFORE THE CIT(A) HAD PRODUCED ALL RELEVANT AND NEC ESSARY DOCUMENTS TO PROVE THE GENUINENESS OF THE PURCHASES. HE SUBMITT ED, THE ASSESSEE HAS PRODUCED QUANTITATIVE TALLY OF PURCHASES, CONSUMPTI ON AND SALES AND NO DISCREPANCY OR DEFECT IS FOUND IN SUCH QUANTITATIVE TALLY, WHICH IS MATCHING ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 6 WITH THE PURCHASES AND SALES INVOICES. HE SUBMITTE D THAT THE ASSESSEE GENERALLY PURCHASES GOODS FROM IN AND AROUND BOMBAY AND HE HAD HIS OWN TRUCK FOR TRANSPORTING GOODS TO HIS FACTORY PREMISE S. THE LEARNED AR SUBMITTED THAT WHEN THE CIT(A) WAS SATISFIED THAT T HE PURCHASES MADE BY THE ASSESSEE ARE GENUINE, THERE IS NO NEED FOR EVEN EST IMATING THE GROSS PROFIT ON ACCOUNT OF BOGUS PURCHASES. HE SUBMITTED THAT O UT OF THE FOUR PARTIES, THE NAME OF ONLY ONE PARTY APPEARED IN THE LIST OF BOGUS DEALERS MAINTAINED BY THE SALES TAX AUTHORITIES; THEREFORE, THE PURCHA SES MADE FROM THE OTHER PARTIES COULD NOT HAVE BEEN DISALLOWED. THE LEARNE D AR SUBMITTED THAT IN ANY CASE OF THE MATTER THE GROSS PROFIT RATE OF 10% APPLIED BY THE CIT(A) IS HIGH AND EXCESSIVE COMPARED TO THE GROSS PROFIT RAT E SHOWN BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS. 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ASSESSEE BEFORE THE DEPARTMENTAL AUTHORITIES HAD NOT PRODUCED INDIV IDUAL DOCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF THE PURCHASES. HE SUBMITTED THAT NEITHER ANY DELIVERY CHALLANS WERE PRODUCED NOR CON FIRMATIONS FROM DIFFERENT PARTIES WERE FURNISHED BY THE ASSESSEE TO PROVE THE PURCHASES. THEREFORE, THE ASSESSEE HAVING FAILED TO PROVE THE PURCHASES T HE ADDITION MADE BY THE AO SHOULD BE RESTORED. HE SUBMITTED SINCE THE ASSE SSEE IS A MANUFACTURING CONCERN, THE SALES FIGURES ARE NOT RELEVANT THEREFO RE, THE OBSERVATION OF THE ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 7 CIT(A), SINCE NO DOUBT HAVE BEEN RAISED REGARDING S ALES FIGURE, PURCHASES CANNOT BE HELD TO BE BOGUS IS A CORRECT CONCLUSION DRAWN ON FACT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE MATERIAL ON RECO RD, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD ENQUIRED INTO TH E PURCHASES ON RANDOM BASIS BY ISSUING NOTICE U/S. 133(6) TO FOUR PARTIES AS MENTIONED HEREIN BEFORE. IT IS RELEVANT TO OBSERVE THE NOTICES ISSUES U/S. 1 33(6) WERE RETURNED UN- SERVED BY THE POSTAL AUTHORITIES. AS IT APPEARS, T HEREAFTER THE AO HAS NOT MADE ANY FURTHER ENQUIRY BY DEPUTING HIS INSPECTOR OR THROUGH ANY OTHER MODE. IT IS ALSO RELEVANT TO OBSERVE, OUT OF FOUR PARTIES, PURCHASES FROM WHOM WERE TREATED AS BOGUS, ONLY ONE PARTY VIZ. SHR EE GANESH TRADING APPEARS IN THE LIST OF BOGUS DEALERS MAINTAINED BY THE SALES TAX AUTHORITIES. AS FAR AS REST OF THE PARTIES ARE CONCERNED, THERE IS NO ALLEGATION AGAINST THEM BY THE SALES TAX AUTHORITIES. THAT BEING THE CASE, IT WAS INCUMBENT ON THE PART OF THE AO TO CONDUCT NECESSARY INQUIRY FOR ESTABLISHING THE FACT THAT THE PURCHASES FROM THE CONCERNED PARTIES ARE BOGUS. MERELY BY ISSUANCE OF NOTICE U/S. 133(6), IT CANNOT BE ESTABLISHED THAT T HE PURCHASES MADE FROM THE CONCERNED PARTIES ARE BOGUS. EVEN, AS FAR AS THE P URCHASES MADE FROM SHREE GANESH TRADING, WHOSE NAME ALLEGEDLY APPEARS IN THE LIST OF BOGUS DEALERS OF SALES TAX AUTHORITIES, NO INDEPENDENT INQUIRY HAS B EEN CONDUCTED BY THE AO. IT IS A FACT ON RECORD, BEFORE THE AO AS WELL AS TH E FIRST APPELLATE AUTHORITY, ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 8 ASSESSEE HAS PRODUCED NOT ONLY ITS BOOKS OF ACCOUN T BUT PURCHASE AND SALE INVOICES, LEDGER ACCOUNTS, BANK STATEMENTS TO PROVE THE GENUINENESS OF PURCHASES. THE ASSESSEE HAS ALSO PRODUCED STATEMEN T SHOWING QUANTITATIVE TALLY OF PURCHASES MADE, CONSUMPTION MADE IN MANUFA CTURING PROCESS AS WELL AS SALE OF FINISHED PRODUCTS WITH REFERENCE TO THE PURCHASE AND SALES INVOICES. ON A CAREFUL READING OF THE ASSESSMENT ORDER, WE HA VE NOT FOUND ANY DEFECT OR DISCREPANCY POINTED OUT BY THE AO IN SUCH QUANTI TATIVE TALLY. IT IS ALSO A FACT THAT THE AO HAS NOT DISPUTED THE CONSUMPTION O F MATERIAL OR SALES TURNOVER DECLARED BY THE ASSESSEE. IN THESE CIRCUM STANCES, WE ARE IN AGREEMENT WITH THE CIT(A) THAT THE ADDITION OF THE ENTIRE PURCHASES BY TREATING THEM AS BOGUS CANNOT BE MADE. AT THE SAME TIME, WE ARE OF THE OPINION THAT THE ASSESSEE HAS FAILED TO PROVE CONCL USIVELY THAT THE PURCHASES WERE ACTUALLY MADE FROM THE CONCERNED PARTIES. THE REFORE, IN THE FACTS AND CIRCUMSTANCES, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES TREATED AS BOGUS CAN BE C ONSIDERED FOR ADDITION. HAVING HELD SO, IT IS NECESSARY TO DECIDE WHAT SHOU LD BE THE GROSS PROFIT RATE IN SUCH CIRCUMSTANCES. AS COULD BE SEEN, THE CIT(A ) HAS APPLIED GROSS PROFIT RATE OF 10% ON THE ALLEGED PURCHASES. HOWEVER, FRO M THE CHART PLACED BEFORE US, WE FIND THAT THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS ARE AS UNDER: ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 9 COMPARATIVE GP CHART TABLE YEAR ENDING 6 YEARS G/P RATIO ACCEPTED BY THE ASSESSING OFFICE U/S. AVERAGE G/P % 31.03.2006 6.79 143(3) 31.03.2007 6.51 143(3) 31.03.2008 5.97 143(3) 31.03.2009 5.60 143(1) 31.03.2010 6.65 143(3) 31.03.2011 6.34 143(3) 37.86/6 6.31% FROM THE AFORESAID CHART, IT IS NOTICED THAT THE GR OSS PROFIT RATE SHOWN BY THE ASSESSEE GENERALLY VARIES BETWEEN 5.5% TO ABOUT 7%. IT IS ALSO NOTICED THAT THE GROSS PROFIT SHOWN BY THE ASSESSEE IN THE PRECE DING ASSESSMENT YEARS HAVE BEEN ACCEPTED BY THE AO IN ASSESSMENT COMPLETE D U/S. 143(3) OF THE ACT. KEEPING IN VIEW THE GROSS PROFIT SHOWN BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS, WE ARE OF THE CONSIDERED OPINION THAT ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES SHOULD BE RESTRICTED TO AN AMOUNT TO BE WORKED OUT BY APPLYING THE GROSS PROFIT RATE OF 7% (SEVEN) OF THE ALLEGED BOGUS PURCHASES. THE AO IS DIRECTED TO COMPUTE THE ADDIT ION ACCORDINGLY AND GRANT CONSEQUENTIAL RELIEF TO THE ASSESSEE. ITA NOS 6342/MUM//2014 6906/MUM/2014 PRAVIN U PARMAR (JAIN) 10 8. IN THE RESULT, THE GROUNDS RAISED BY THE ASSESS EE ARE PARTLY ALLOWED AND THOSE BY THE DEPARTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DAY OF APRIL 2017. SD/- SD/- (G S PANNU) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 5 TH APRIL, 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, C BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI