KIRTIKUMAR D. SHAH, MUMBAI V. ACIT 19(2), MUMBAI

ITA 7200/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0978 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C SELVAMANI
• Keywords: Reopening of assessment; Bogus purchase; Reason to believe
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI C.N. PRASAD, JM ITA NOS. 7198 & 7200/MUM/2018 ( ASSESSMENT YEARS: 2011-12 & 2013-14) KIRTIKUMAR D. SHAH, 39, 4 TH FLOOR, NANIK NIWAS, D.D. SATHE MARG, BANHAM HALL, GIRGAON, MUMBAI. VS. A.C.I.T.-19(2), 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI. PAN/GIR NO. ALNPS 6533 Q (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI HIMANSHU GANDHI (AR) REVENUE BY SHRI K.C. SELVAMANI (DR) DATE OF HEARING 16/12/2019 DATE OF PRONOUNCEMENT 16/12/2019 / O R D E R PER: R.C. SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE SEPARATE ORDERS OF THE LD. CIT(A)-30, MUMBAI DATED 12/10/201 8 FOR THE A.Y. 2011- 12 AN 2013-14 RESPECTIVELY IN THE MATTER OF ORDER P ASSED U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT, T HE ACT). 2. GRIEVANCE OF THE ASSESSEE IN BOTH THE YEARS RELA TE TO REOPENING OF ASSESSMENT AND ESTIMATION OF GROSS PROFIT ON THE AL LEGED BOGUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURING, IMPORT, EXPORT AND TRADING OF CUT AND POLISHED AND ROUGH DIAMONDS. THE A.O. GOT INFORMATION FROM THE INVESTIGATION WING OF THE DEPARTMENT ITA NO. 7198 & 7200/MUM/2018 KIRTIKUMAR D. SHAH VS ACIT 2 REGARDING ASSESSEE HAVING OBTAINING ACCOMMODATION B ILL WITH REGARD TO PURCHASES OF DIAMONDS. ACCORDINGLY, THE CASE WAS RE OPENED FOR THE A.Y. 2011-12 AND THEREAFTER THE ADDITION WAS MADE BY THE A.O. BY ESTIMATING PROFIT @ 3% ON POLISHED DIAMONDS AND 5% ON ROUGH DI AMONDS. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITI ON BY ESTIMATING PROFIT AT 3% IN POLISHED AND ROUGH DIAMONDS BOTH, A GAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 4. THE LD AR OF THE ASSESSEE SHRI HIMANSHU GANDHI H AS ARGUED THAT THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION IN RE SPECT OF GENUINE PURCHASES FOR WHICH COMPLETE QUANTITATIVE DETAILS W ERE FILED BEFORE THE A.O. AS PER THE LD. AR, THE ASSESSEE HAS FILED STOC K REGISTER REFLECTING GOODS RECEIVED AND PROCESSING AND MANUFACTURING THE REOF AND CORRESPONDING SALE WITH INDIVIDUAL INVOICE BEFORE T HE A.O. FURTHERMORE, ONE TO ONE MAPPING OF GOODS PURCHASES, PROCESSED AN D SUBSEQUENT SALES WITH QUANTITY WAS ALSO FILED BEFORE THE A.O. WHICH PROVES THAT THE ASSESSEE HAS PURCHASED GOODS AND SUBSEQUENTLY SOLD THE SAME GOODS. ALLEGING THE REOPENING, HE FURTHER CONTENDED THAT I N THE A.Y. 2011-12, THE A.O. HAS NOT RECORDED ANY REASON TO BELIEVE THA T THERE IS ESCAPEMENT OF ANY INCOME, ACCORDINGLY, THE REOPENIN G WAS NOT JUSTIFIED. 5. WITH REGARD TO MERIT OF THE ADDITION, THE LD AR HAS RELIED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF PR.CIT VS. MOHOMMAD HAJI ADAM & CO. IN ITA NO. 1004 OF 2016 OR DER DATED ITA NO. 7198 & 7200/MUM/2018 KIRTIKUMAR D. SHAH VS ACIT 3 11/02/2019. HE HAS FURTHER SUBMITTED THAT THE HONB LE JURISDICTIONAL HIGH COURT DECISION HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS BENCHES OF THE TRIBUNAL. RESPECTIVE ORDERS WERE PLA CED ON RECORD. IT WAS CONTENDED THAT WHEN CORRESPONDING SALE ARE ACCE PTED, THE ADDITION ON ACCOUNT OF BOGUS PURCHASES SHOULD BE CONFINED TO THE DIFFERENCE BETWEEN THE GP DECLARED IN RESPECT OF BOGUS PURCHAS ES AS COMPARED TO THE GP IN NORMAL PURCHASES. 6. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDER OF THE A.O. AN CONTENDED THAT DURING THE COURSE OF SEARCH AT BH ANWAR LAL GROUP, IT WAS FOUND THAT THE ASSESSEE HAS TAKEN ACCOMMODATION BILLS OF PURCHASES WITHOUT TAKING DELIVERY. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND FROM THE RECORD THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING, EXPO RT AND TRADING OF DIAMONDS. WE ALSO FOUND THAT BEFORE THE A.O., THE A SSESSEE HAS FILED QUANTITATIVE DETAILS OF PURCHASES, STOCK REGISTER R EFLECTING GOODS RECEIVED AND PROCESSING AND MANUFACTURING THEREOF AND CORRES PONDING SALES WITH INDIVIDUAL INVOICE WITH RESPECT TO ALLEGED BOGUS PU RCHASES. THE A.O. MADE ADDITION BY ESTIMATING GP ON SUCH ALLEGED BOGU S PURCHASES. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAS GIVEN PARTIA L RELIEF AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. AFTER GOIN G THROUGH THE FACTS OF THE CASE, WE OBSERVE THAT WITH RESPECT TO ISSUE REG ARDING ADDITION IN ITA NO. 7198 & 7200/MUM/2018 KIRTIKUMAR D. SHAH VS ACIT 4 RESPECT OF BOGUS PURCHASES, THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. (SUP RA) HAVE HELD AS UNDER: 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUE STION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIR E PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOM E 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 T HE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DIS CREPANCY 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 LIMIT ED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RAT E OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT I N 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 THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY TH E ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD AD MITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997-98 IS CONCERNED, WE ARE OF THE VIEW THAT THE A SSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6% GROSS PROFIT IS TAKE N INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED T O BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE . WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH ITA NO. 7198 & 7200/MUM/2018 KIRTIKUMAR D. SHAH VS ACIT 5 PROFIT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66% OF RS.3,70,78,125/-WHICH COMES TO RS.20,98,621.88 WE T HINK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GRO SS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASS ESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE.' 8. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 AFTER FOLLOWING THE ABOVE DECISION OF HO NBLE BOMBAY HIGH COURT HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIR MED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SMITH P.SETH (SUPRA). WE HAVE CONSIDERE D THE RIVAL CONTENTIONS AND ARE OF THE VIEW THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPR A) HAS CONSIDERED THIS ISSUE AND RESPECTFULLY FOLLOWING TH E SAME, WE DIRECT THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT O F DIFFERENTIAL PERCENTAGE AS DECLARED ON THE BOGUS PURCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO ACCORDINGLY. 9. IT IS CLEAR FROM THE ABOVE DECISIONS THAT IN CAS E OF BOGUS PURCHASES WHERE SALES ARE ACCEPTED AND ASSESSEE HAS FILED QUANTITATIVE DETAILS OF PURCHASES AND ALSO STOCK REGISTER REFLEC TING GOODS RECEIVED, THE ADDITION IS REQUIRED TO BE MADE ONLY TO THE EXT ENT OF DIFFERENCE BETWEEN THE GP DECLARED BY THE ASSESSEE ON NORMAL P URCHASES VIS A VIS BOGUS PURCHASES. RESPECTFULLY FOLLOWING THE ORDER O F THE HONBLE JURISDICTIONAL HIGH COURT AND THE COORDINATE BENCH OF THE ITAT, MUMBAI, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. TO RESTRICT THE ADDITION TO THE EXTENT OF LOWER GP DECLARED BY THE ASSESSEE IN RESPECT OF BOGUS ITA NO. 7198 & 7200/MUM/2018 KIRTIKUMAR D. SHAH VS ACIT 6 PURCHASES AS COMPARED TO GP ON NORMAL PURCHASES. TH E ASSESSEE IS ALSO DIRECTED TO GIVE FULL DETAILS TO THE A.O. WITH REGA RD TO GP EARNED ON NORMAL PURCHASES AND ALSO GP EARNED ON ALLEGED BOGU S PURCHASES. WE DIRECT ACCORDINGLY. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED IN PART FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2019. SD/- (C.N. PRASAD) SD/- (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 16/12/2019 *RANJAN 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//