ITO 26(3)(2), MUMBAI V. SHRI. SHEHBAZ ABDULLA CHAWDHARI, Mumbai

ITA 72/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8859 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 04-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHTAR HANSARI
• 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. 71 & 72/MUM/2019 ( ASSESSMENT YEAR: 2010-11 & 2011-12) I.T.O.-26(3)(2), ROOM NO. 508, 5 TH FLOOR, C-11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051. VS. SHRI SHEHBAZ ABDULLA CHAWDHARI, PROP.OF M/S FORTUNE STEEL ENTERPRISES, A-404, DWARKA SHOPPING CENTRE, F.P.P. MARG, KURLA (WEST), MUMBAI-400070. PAN/GIR NO. AINPC 0731 B (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI AKHTAR H ANSARI (DR) ASSESSEE BY NONE DATE OF HEARING 13/01/2020 DATE OF PRONOUNCEMENT 14/01/2020 / O R D E R PER: R.C. SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE LD. CIT(A)-38, MUMBAI DATED 31/07/201 8 FOR THE A.Y. 2010-11 & 2011-12 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. IN BOTH THESE APPEALS, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) FOR RESTRICTING THE ADDITION ON ACCO UNT OF BOGUS PURCHASES TO THE EXTENT OF 12.5% AND FURTHER GIVING RELIEF ON ACCOUNT OF G.P. ALREADY DECLARED BY THE ASSESSEE. ITA NO. 71 & 72/MUM/2019 ITO VS SHEHBAZ ABDULLA CHAWDHARI 2 3. I HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AND FOUND THAT THE A.O. GOT INFORMATION FROM THE SALES TAX DEPARTMENT REGARDING BOGUS PURCHASES BY THE ASSESSEE. AFTER CO NSIDERING FACTS OF THE CASE, THE A.O. MADE ADDITION BY ESTIMATING THE G.P. OF 12.5% ON SUCH BOGUS PURCHASES. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAD DIRECT ED FOR FURTHER RELIEF ON ACCOUNT OF THE G.P. DECLARED BY THE ASSES SEE IN THE RESPECTIVE ASSESSMENT YEARS. PRECISE OBSERVATION OF THE LD. CI T(A) AS UNDER: 9.3 . 5 IN VIEW OF THE GIVEN SCENARIO, SINCE THE RECEIPT OF THE MATERIAL IN QUESTION IS NOT IN DOUBT, I AM IN AGREEMENT WITH TH E VIEW TAKEN BY THE AO THAT THE MATERIAL IN QUESTION SHOWN AS PURCH ASES THROUGH FICTITIOUS INVOICES IN THE NAMES OF THE AFORESAID P ARTIES, HAVE BEEN PURCHASED FROM SOME OTHER SOURCES BECAUSE WITHOUT R ECEIVING SUCH MATERIALS, THE CORRESPONDING SALES WOULD NOT HAVE B EEN POSSIBLE. AS THE SALES TURNOVER IS NOT DISPUTED, AP PLYING THE LOGICAL COROLLARY THAT THERE CANNOT BE SALES WITHOU T PURCHASES OF MATERIALS IT IS A CASE WHEREIN THE APPELLANT BEING A TRADER ONLY TOOK BILLS FROM THE ABOVE PARTIES TO RECORD IN THE BOOKS OF THE APPELLANT THE HIGHER PRICE MENTIONED IN THE ALLEGED PURCHASE INVOICES TO INFLATE EXPENSES AND REDUCE THE PROFITS OF ITS BUSI NESS THOUGH THE PURCHASES WERE MADE FROM OPEN MARKET. THE MATERIAL HAD BEEN RECEIVED FROM SOURCES BEST KNOWN TO THE ASSESSEE AT LESSER PRICE AS IT IS WELL KNOWN THAT IF THE MATERIAL IS PURCHASED WITHOUT INSISTING ON A BILL, THE COST IS MUCH LESSER THAN THE ONE FOR WH ICH BILL IS ISSUED. TAKING INTO ACCOUNT THE BENEFIT OF LOWER PRICE IN T HE GREY MARKET DUE TO NON-LEVY OF SALES TAX AND NONPAYMENT OF INCOME- TAX AND THE INFLATION IN THE PURCHASE PRICE ACCOUNTED IN THE BO OKS OF THE APPELLANT AS PER THE PURCHASE INVOICES ISSUED BY TH E ALLEGED 1 P ITA NO. 71 & 72/MUM/2019 ITO VS SHEHBAZ ABDULLA CHAWDHARI 3 SUPPLIERS/ PARTIES AND CONSIDERING THE ENTIRE MATER IAL ON RECORD, AND IN ACCORDANCE WITH THE SETTLED LEGAL ACCOUNTANC Y, TAXATION LAWS AS WELL AS JUDICIAL RULINGS, THE STAND TAKEN B Y THE AO TO ESTIMATE THE PROFIT EMBEDDED IN THE ALLEGED PURCHAS ES IN MY CONSIDERED OPINION IS JUSTIFIED. 9.3.6 TO ARRIVE AT THE QUANTUM OF PROFIT CHARGEABL E TO TAX, THE JUDICIAL AUTHORITIES HAVE HELD IN SEVERAL CASES WHEREIN SIMI LAR ISSUES OF ALLEGED BOGUS PURCHASE CAME UP FOR ADJUDICATION THA T THE PROFIT ELEMENT EMBEDDED IN THE ALLEGED BOGUS PURCHASES HAS TO BE COMPUTED CONSIDERING THE NATURE OF BUSINESS ACTIVIT Y. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH REPORTED IN 356 ITR 451 HAS HELD THAT THERE IS NO UNIFORM YARDS TICK TO MEASURE THE QUANTUM OF PROFIT ELEMENT EMBEDDED IN THE ALLEG ED BOGUS PURCHASE AND WILL VARY FROM CASE TO CASE. THE HON'B LE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHOLANTH POLY FAB PVT. LTD., SUSTAINED THE ORDER OF LD.CIT (A)'S ACTION OF RESTRICTING THE ADD ITION TO 12.5% AS AGAINST 25% MADE BY THE AO. TAKING INTO ACCOUNT THE INADEQUACY OF DOCUMENTARY EVIDENCES PRODUCED TO ESTABLISH GENU INENESS OF THE CLAIM OF ALLEGED PURCHASES, INFLATION IN THE PURCHA SE PRICE RECORDED IN THE BOOKS AND COST SAVING BENEFITS THAT APPELLAN T MIGHT HAVE AVAILED, CONSIDERING THAT THE APPELLANT IS A TRADER IN IRON, STEEL, PIPES, ANGLE CHANNELS AND SCRAPS COMPUTING T HE PROFIT AT 12.5% OF THE TOTAL BOGUS PURCHASES IS CONSIDERED JUSTIFIED. HOWEVER, THE HON'BLE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI IN ADJUDICATING SIMILAR ISSUE OF ALLE GED BOGUS/NON-GENUINE PURCHASES IN THE CASE OF M/S RATN AGIRI STAINLESS PVT. LTD. VS. INCOME TAX OFFICER 5(3)(1), MUMBAL IN I.T.A. NO. 4463/MUM/2016, ASSESSMENT YEAR 2009-10 IN ITS O RDER DATED 04.04. 2017 HELD AS, 'IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2008- 09, THE ASSESSEE EARNED GP RATIO OF 4.3% ON TOTAL T URNOVER, ITA NO. 71 & 72/MUM/2019 ITO VS SHEHBAZ ABDULLA CHAWDHARI 4 WHILE FOR THE YEAR UNDER CONSIDERATION GP RATIO EAR NED WAS 5.45%. IN. OUR CONSIDERED VIEW AND BASED ON FAC TS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED BY US IN DET AILS ABOVE, END OF JUSTICE WILL BE MET IN THIS CASE IF G P RATIO OF 12.5% ON ALLEGED BOGUS PURCHASES IS ADDED TO INCOME OF THE ASSESSEE AGAINST WHICH CREDIT FOR THE DECLARED GP RATIO ON THE ALLEGED BOGUS PURCHASES WILL BE GRANTED BY T HE AO AFTER VERIFICATION BY THE AO BECAUSE OF FAILURE OF THE ASSESSEE TO COME FORWARD TO DISCHARGE PRIMARY ONUS CAST UPON HI M AS DETAILED ABOVE FOR WHICH ASSESSEE IS TO BE BLAMED A ND IN THE MIDST OF AFORE-STATED UN-REBUTTED ALLEGATION AG AINST THE ASSESSEE AND NON DISCHARGE OF PRIMARY ONUS, THE DECLARED LOWER GP RATIO OF 5.45% IN THE INSTANT PREVIOUS YEAR UNDER APPEAL CANNOT BE ACCEPTED. THUS , IN NUT-SHELL WE ARE INCLINED TO ADOPT GP RATIO OF 12.5 % ON ALLEGED BOGUS PURCHASES IN THE INSTANT CASE WHICH I N OUR CONSIDERED VIEW IS FAIR, REASONABLE AND RATIONAL KE EPING IN VIEW FACTUAL MATRIX OF THE CASE, WHILE THE ASSESSEE SHALL BE GRANTED CREDIT OF GP RATIO DECLARED ON THESE BOGUS PURCHASES IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE AS SESSEE GETS PART RELIEF.' IN THE INSTANT CASE, IT IS OBSERVED THAT IN RETURN FILED FOR THE ASSESSMENT YEAR, 2010-11 UNDER CONSIDERATION IS G.P . RATIO DECLARED IS 3.76%, WHILE THE NP RATIO IS 1.58%. AS AGAINST THESE RATIOS, THE AVERAGE GP FOR SUCCEEDING FIVE ASSESSME NT YEARS 2012-13 TO 2016-17 IS 8%, WHEREIN THE ISSUE OF BOGU S PURCHASE IS NOT FOUND AS ON DATE. CONSIDERING, THE ABOVE AVERAGE G.P., FACTS AND CIRCUMSTANCES OF THE INSTAN T CASE IN TOTALITY, AND RESPECTFULLY, FOLLOWING THE AFORESAID DECISION OF THE HON'BLE JURISDICTIONAL TRIBUNAL, I FIND IT RATIONAL TO REDUCE THE GROSS PROFIT PERCENTAGE OF 3.76% ALREADY OFFERED IN THE RETURN FILED FROM 12.5% TO COMPUTE THE PROFIT EMBEDDED IN THE ALLEGED BOGUS PURCHASES. ACCORDINGLY, THE PROFIT IS COMPUTE D AT 8.75% (12.5-3.76=8.74 TAKEN AS 8.75%) OF AGGREGATE ALLEGE D BOGUS PURCHASES OF RS.1,79,36,112/- WHICH WORKS OUT TO RS . 15,69,410/-. THE AO IS DIRECTED TO RESTRICT THE ADDITION TO TOTA L INCOME OF THE ITA NO. 71 & 72/MUM/2019 ITO VS SHEHBAZ ABDULLA CHAWDHARI 5 APPELLANT ON ACCOUNT OF PROFIT EMBEDDED IN THE BOGU S PURCHASES TO RS. 15,69,410/-. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. I HAVE HEARD THE CONTENTS OF THE LD. DR AND FOUN D THAT THE LD. CIT(A) HAS DEALT WITH THE ISSUE THREADBARE AND AFTE R CONSIDERING OF VARIOUS JUDICIAL PRONOUNCEMENTS, THE G.P. DECLARED BY THE ASSESEE DURING THE YEARS UNDER CONSIDERATION VIS A VIS AVER AGE G.P. DECLARED IN SUBSEQUENT FIVE YEARS HAD GIVEN FURTHER RELIEF OF G .P. ALREADY DECLARED BY THE ASSESSEE AT 3.76% OVER THE G.P. ESTIMATED BY THE A.O. FOR ADDITION AT 12.5%. DETAILED FINDINGS SO RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD. DR AS FAULTY. ACCO RDINGLY, I DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A) FOR FURTHER GIVING RELIEF TO THE EXTENT OF G.P. ACTUALLY DECLAR ED BY THE ASSESSEE. HENCE, I UPHOLD THE ORDER OF THE LD. CIT(A). 6. SINCE THE FACTS AND CIRCUMSTANCES OF BOTH THE YE ARS ARE SAME, THEREFORE, BY FOLLOWING THE REASONING GIVING IN THE APPEAL FOR THE A.Y. 2010-11, I ALSO UPHOLD THE ACTION OF THE LD. CIT(A) FOR THE A.Y.2011-12. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY, 2020. SD/- (R.C.SHARMA) ACCOUNTANT MEMBER MUMBAI; DATED 14/01/2020 *RANJAN ITA NO. 71 & 72/MUM/2019 ITO VS SHEHBAZ ABDULLA CHAWDHARI 6 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//