NITIN AVANTILAL DOSHI, MUMBAI V. CIT (A)32, MUMBAI

ITA 730/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9115 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 16-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Accommodation entries

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , A M AND SHRI AMARJIT SINGH, JM ./ I.T.A. NO. 730/MUM/2015 ( / ASSESSMENT YEAR: 2011 - 12 ) NITIN AVANTILAL DOSHI GALA NO.3 TO 5, PLOT NO. 13 - A, MAGAZINE STREET, DARUKHANA, REAY ROAD RLY STATION, MUMBAI - 400 010 / VS. CIT(A) - 32, MUMBAI ./ ./ PAN/GIR NO. AABPD 1214 A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI RAM TIWARI / DATE OF HEARING : 07.09.2017 / DATE OF PRONOUNCEMENT : 03.10. 2017 / O R D E R PER SHAMIM YAHYA , A. M.: T HIS APPEAL BY THE A SSESSEE IS DIRECT ED AGAINST ORDER OF LEARNED CIT( A ) - 32, MUMBAI DATED 06.01.2015 A ND PERTAINS TO ASSESSMENT YEAR 2011 - 12. 2. T HE ISSUE RAISED IS THAT THE LD. CIT ( A ) ERRED IN SUSTAINING DISALLOWANCE OF 12.5% OF BOGUS PURCHASE AMOUNTING TO RS.23,13,873/ - . 3. T HE GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND IN LAW THE LEARNED CIT (A) 32 AS ERRED IN CONFIRMING ADDITION ON ACCOUNT OF ALLEGED BOGUS SALES. 2 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) 2. ON THE FACTS AND IN LAW, THE LEARNED CIT (A) 32 HAS ERRED IN CONFIRMING AD - HOC DISALLOWANC E OF 12.5% OF ALLEGED BOGUS PURCHASES AMOUNTING TO RS. 23,13,873/ - FROM THE FOLLOWING PARTIES: SR.NO. NAME OF PARTY PURCHASES AMOUNT (IN RS.) 1. M/S. ANKIT ENTERPRISES 42,59,263/ - 2. M/S. MAULIK STEEL CORPORATION 40,29,858/ - 3. M/S. VAISHALI ENTER PRISES 44,90,484/ - 4. M/S KEVAL ENTERPRISES 10,06,352/ - 5 . M/S. R.S. ENTERPRISES 47,25,023/ - TOTAL 1,85,10,9807 - DISALLOWANCE : 12.5% OF RS.1,85,10,980 AMOUNTING TO RS. 23,13,873/ - 3. ON THE FACTS OF THE CASE AND WITHOUT PREJUDICE TO THE AB OVE, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE @ 12.5 % OF THE ALLEGED BOGUS WHILE CONFIRMING THAT DISALLOWANCE OUGHT TO BE MADE ON GROSS PROFIT /NET PROFIT BASIS. APPELLANT PLEADS THAT THE DISALLOWANCE HAS BEEN BASED ON THE PROFIT OF OTHER ENTITY (PROFIT @ 12.5 % IN CIT VS SIMIT P. SHETH 356 ITR 451 (GUJ)). APPELLANT PLEADS THAT ITS GROSS PROFIT'FOR THE YEAR WAS 10.57 % AND NET PROFIT WAS 0.96 %. CONSIDERING THAT TAX IS PAYABLE ON THE NET PROFIT, APPELLANT PLEADS THAT DISALLOWANCE WAS NEEDED TO HAVE BEEN RESTRICTED TO THE NET PROFIT @ 0.96 %. 4. THE ORDER UNDER APPEAL IS NOT ONLY BAD IN LAW AND INVALID, BUT ALSO AGAINST THE PRINCIPALS OF NATURAL LAW OF EQUITY AND JUSTICE. 4. I N THIS CASE , THE ASSESSEE FILED RETURN OF INCOME FOR A.Y. 2011 - 12 ON 29/09/2011 DECLARING TOTAL INCOME OF RS.19,21,254/ - . THE RETURN WAS PROCESSED U/S 143(1). THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER CASS. NOTICES U/S 143(2) &142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. THE ASSESSEE IS A PROPRIETOR ENGAGE D IN METALS AND ALLOYS CARRYING BUSINESS AS WHOLESALER UNDER THE NAME AND 3 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) STYLE M/S . KU SHAL METAL & STEEL INDUSTRIES AND IS MAINTAINING SALES, PURCHASE REGISTER, LEDGER BOOK, CASH AND BANK BOOKS AND THE ASSESSEE'S RATE OF GP AND NP FOR FY 2009 - 10 WAS 11.26 % AND 1.25% AND FOR FY 2010 - 2011 WAS 10.57% AND 0.96% RESPECTIVELY. THE ASSESSEE MADE PURCHASES OF RS.20,40,42,115 AND SALES OF RS.21,17,50,869/ - IN HIS ASSESSMENT ORDER, THE AO HAD MADE AN ADDITION OF 12.5 % OF ALLEGED BOGUS PURCHASES OF RS.1,85,10,980 / - FROM 5 PARTIES, AMOUNTING TO A DISALLOWANCE OF RS.23,13,873 / - . THE PURCHASES, AS GIVEN BELOW, WERE DISALLOWED ON THE GROUNDS THAT THE SAME WERE 'BOGUS' AS NOTICES ISSUED TO THE PARTIES WERE RETURNED BACK UNSERVED BY THE POSTAL AUTHORITIES. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES PERSONALLY AND TO CONFIRM THE PURCHASES BUT THE ASSESSEE DID NOT DISCHARGE THE RESPONSIBILITIES AS THE ONUS SQUARELY LIES WITH HIM. THE ASSESSEE'S SUBMISSIONS WERE NOT CONSIDERED. IN VIEW OF THESE FACTS, THE PURCHASES WERE TRE ATED AS NOT GENUINE AND DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AFTER ADOPTING 12.5% OF THE BOGUS PURCHASES AS UNDER: SR.NO. NAME OF PARTY AMOUNT (IN RS.) 1. M/S. ANKIT ENTERPRISES 42,59,263/ - 2. M/S. MAULIK STEEL CORPORATION 40,29,858/ - 3. M/S. VAISHALI ENTERPRISES 44,90,484/ - 4. M/S. KEVAL ENTERPRISES 10,06,252/ - 5 M/S. R.S. ENTERPRISES 47,25,023/ - TOTAL 1,85,10,980/ - 4 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) DISALLOWANCE @ 12.5 % OF RS. 1,85,10,980 / - 23,13,873 / - 5. A GAINST THE ABOVE ORDER , THE ASSESSEE APPEALED BEFORE T HE LEARNED C IT( A ) WHO CONFORMED THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF 12.5% OF THE BOGUS PURCHASE. THE LD. CIT(A) HELD AS UNDER: 5.2 I HAVE PERUSED THE ASSESSMENT ORDER, SUBMISSIONS OF APPELLANT, AND THE FACTS AND CIRCUMSTANCE OF THE CASE. ON CAREFUL EXAMINATION OF THE SAME, I OBSERVE THAT UNDER INCOME TAX ACT, 1961 WHAT CAN BE TAXED IS THE REAL INCOME. EVEN THOUGH THE TRANSACTION IS NOT VERIFIABLE, WHAT IS TAXABLE IS THE INCOME COMPONENT, AND NOT THE ENTIRE TRANSACTION AMOUNT. I FIND THAT IN MANY SUCH CASES, THE ADDITIONS ARE MADE BASED ON THE G.P./ N.P. RATIO. IN SUCH A SITUATION, EVEN ASSUMING THAT THE APPELLANT WOULD HAVE PURCHASED THE GOODS BY INVESTING THE UNACCOUNTED CASH, STILL IT IS UNDISPUTED THAT THE SALE PROCEEDS OF SAID GOO DS HAVE BEEN DULY ACCOUNTED FOR IN THE BOOKS AND OFFERED TO TAX. HENCE, THE ADDITION OF ENTIRE PURCHASE AMOUNT CANNOT BE MADE IN THE PRESENT CASE. RATHER, THE CAUSE OF JUSTICE WOULD BE MET BY MAKING ADDITION OF A REASONABLE PERCENTAGE OF SUCH PURCHASES IN OR DER TO FULFILL THE GAP OF ANY REVENUE LEAKAGE IN AFORESAID CIRCUMSTANCES. IN THIS CASE, THE AO AFTER TAKI NG INTO CONSIDERATION VARIOUS FACTS AND CIRCUMSTANCES HAS DISALLOWED ONLY 12.5% WHICH WAS RS.23,13,873/ - O NLY AND THE APPELLANT GOT RELIEF OF RS.1,61 ,97,107 (RS. 1 ,85,10,980/ - - RS.23,13 , 873/ - ). T HE APPELLANT ALSO RELIED ON THE DECISIONS IN THE CASES OF COMMISSIONER OF INCOME TAX - I VS IT P SHETH ,356 ITR 451 AND M/S . BHOLENATH POLY FAB PVT. LTD. VS AO, 355 ITR 290. IN THE DECISIONS THE GP/NP SHOULD BE ADOPTED TO DECIDE JUST TYPE OF CASES. CIT V/S. BHOLANATH POLY FAB PVT. LTD. 355 ITR 290 (GUJ.) HELD, DISMISSING THE APPEAL, THAT WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHETHER THE PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MA.DE WERE BOGUS WA S ESSENTIALLY A QUESTION OF FACT. THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO THE CONCLUSION THAT THE ASSESSEE DID PURCHASE THE CLOTH AND SELL THE FINISHED FABRICS. THEREFORE, AS A NATURAL COROLLARY, NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASES, BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX. 2. CIT Y/S. SIMIT P. SHETH 356 ITR 451 (GUI) HELD, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) BELIEVED THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PA RTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT. THAT BEING THE POSITION, NOT THE ENTIRE PURCHASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN 5 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE. IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED T HE POSSIBL E PROFIT OUT OF PURCHASES MADE THROUGH NON - GENUINE PARTIES. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK COULD BE ADOPTED. FOLLOWING THE GUJARAT HIGH COURT IN THE CASES O F COM MISSIONER OF INCOME TAX - I VS SIMIT P SHETH ,356 ITR 451 AND M/S BHOLENATH POLY FAB PVT. LTD. VS AO, 355 ITR 290, WHERE DISALLOWNCES WERE MADE ON GP/NP ON PERCENTAGE BASIS, AND MORE PARTICULARLY IN THE CASE OF SIMIT P SHETH, WHERE PROFITFFI 12.5% ALLOWED WA S NOT DISTURBED BY THE HON'NLE HIGH COURT. IN VIEW OF THE ABOVE FACTS, I DO NOT FIND ANY REASON TO DISTURB THE DISALLOWANCE MADE BY THE AO AND THERE IS NO INFIRMITY IN HIS ORDER. THEREFORE, THE ADDITION MADE BY THE AO IS HEREBY CONFIRMED AND ALL THE GROUND S OF APPEAL ARE DISMISSED ACCORDINGLY. IN THE RESULT, THE APPEAL IS DISMISSED. 6. AGAINST THE ABOVE ORDER OF LEARNED CIT ( A ), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE RECORDS. NONE APPEARED ON BEHALF OF THE AS SESSEE DESPITE NOTICE. HENCE, THIS APPEAL IS DIS POSED OFF BY HEARING THE LD. DR AND PE RUSING THE RECORDS. 8. WE FIND THAT CREDIBLE AND COGENT INFORMATION WAS RECEIVED IN THIS CASE BY THE ASSESSING OFFICER THAT CERTAIN ACCOMMODATION ENTRY PROVIDER/BOGUS SUPPLIERS WERE BEING USED BY CERTAIN PARTIES TO OBTAINED BOGUS BILLS . THE ASSESSEE WAS FOUND TO HAVE TAKEN ACCOMMODATION ENTRY/BOGUS PURCHASE BILLS DURING THE CONCERNED ASSESSMENT YEAR FROM DIFFERENT PARTIES. BASED UPON THIS INFORMATION ASSESSMENT WAS REO PENED. THE CREDIBILITY OF INFORMATION RELATING TO REOPENING REMAINS UN - ASSAILED. IN SUCH FACTUAL SCENARIO , THE ASSESSING OFFICER HAS MADE THE NECESSARY ENQUIRY. THE ISSUE OF NOTICE TO ALL THE PARTIES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PR OVIDE ANY CONFIRMATION FROM ANY OF THE PARTY. ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE 6 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) ANY OF THE PARTIES. NECESSARY EVIDENCE RELATING TO TRANSPORTATION OF THE GOODS WAS ALSO NOT ON RECORD. IN THIS FACTUAL SCENARIO IT IS AMPLY CLEAR THAT ASSESSEE HAS OBT AINED BOGUS PURCHASE BILLS. MERE PREPARATION OF DOCUMENTS FOR PURCHASES CANNOT CONTROVERT OVERWHELMING EVIDENCE THAT THE PROVIDERS OF THESE BILLS ARE BOGUS AND NON - EXISTENT. 9 . THE S ALES T AX DEPARTMENT IN ITS ENQUIRY HAVE FOUND THE PARTIES TO BE PROVIDING BOGUS ACCOMMODATION ENTRIES. THE ASSESSING OFFICER ALSO ISSUED NOTICES TO THESE PARTIES AT THE ADDRESSES PROVIDED BY THE ASSESSEE. ALL THESE NOTICES HAVE RETURNED UNSERVED. ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY OF THE PARTIES. NEITHER THE ASSESSEE HAS BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THESE PARTIES. IN SUCH CIRCUMSTANCES , THERE IS NO DOUBT THAT THESE PARTIES ARE NON - EXISTENT. WE FIND IT FURTHER STRA NGE THAT ASSESSEE WANTS THE R EVENUE TO PRODUCE ASSESSEE'S OWN VENDORS, W HOM THE ASSESSEE COULD N OT PRODUCE. 10. THE P URCHASE BILLS FROM THESE NON - EXISTENT /B OGUS PARTIES CANNOT BE TAKEN AS COGENT EVIDENCE OF PURCHASES. IN LIGHT OF THE OVERWHELMING EVIDENCE THE R EVENUE AUTHORITIES CANNOT PUT UPON BLINKERS AND ACCEPT THESE PURCHASES AS GENUINE. THIS PR OPOSITION IS DULY SUPPORTED BY HONBLE APEX COURT DECISION IN THE CASE OF SUMATI DAYAL 214 ITR 801 AND DURGA PRASAD M ORE 82 ITR 540. IN THE PRESENT CASE , THE ASSESSEE WANTS THAT THE UNASSAILABLE FACT THAT THE SUPPLIERS ARE NON - EXISTENT AND THUS BOGUS SHOUL D BE IGNORED AND ONLY THE DOCUMENTS BEING PRODUCED SHOULD BE CONSIDERED. THIS PROPOSITION IS TOTALLY UNSUSTAINABLE IN LIGHT OF ABOVE APEX COURT DECISIONS. 7 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) 11 . WE FURTHER FIND THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ E NTERPRISES HAS UPH ELD 100% ALLOWANCE FOR THE PURCHASES WHEN THE SALES HAVE NOT BEEN DOUBTED. HOWEVER , THE FACTS OF THAT CASE WERE DIFFERENT . F URTHERMORE , THE SALES IN THAT CASE WERE BASICALLY TO GOVERNMENT DEPARTMENTS. HENCE , THE RATIO FROM THIS DECISION IS NOT APPLICABLE O N THE FACTS OF THE CASE. 1 2 . IN THESE CIRCUMSTANCES , THE L D. D EPARTMENTAL R EPRESENTATIVE HAS REFERRED TO HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF T AX A PPEAL N O . 240 OF 2003 IN THE CASE OF N K INDUSTRIES VS . DY CIT, ORDER DT . 20/06.2016, WHEREIN 100% OF THE BOGUS PURCHASES WAS HELD TO BE ADDED IN THE HANDS OF THE ASSESSEE AND TRIBUNALS RESTRICTION OF THE ADDITION TO 25% OF THE BOGUS PURCHASES WAS SET ASIDE. IT WAS EXPOUNDED THAT WHEN PURCHASE BILLS HAVE BEEN FOUND TO BE BOGUS 100% DISALLOWANCE WA S REQUIRED. THE SPECIAL LEAVE PETITION AGAINST THIS ORDER ALONGWITH OTHERS HAS BEEN DISMISSED BY THE HONBLE APEX COURT VIDE ORDER DT 16 .1 2017. 1 3 . WE FURTHER NOTE THAT HONBLE RAJASTHAN HIGH COURT HAS SIMILARLY TAKEN NOTE OF DECISIONS OF THE APEX COURT ON THE ISSUE OF BOGUS PURCHASES IN THE CASE OF CIT JAIPUR VS SHRUTI GEMS IN ITA NO. 658 OF 2009. THE HONBLE HIGH COURT HAS REFERRED TO THE DECISION OF C IT JAIPUR VS. ADITYA GEMS, D. B. IN ITA NO. 234 OF 2008 DATED 0 2 . 11 . 2016, WHEREIN THE HONBLE COURT HA D INTER ALIA HELD AS UNDER: ' CONSIDERING T HE LAW DECLARED BY THE SUPREME CO URT IN THE CA SE OF VIJAY PROTEINS LTD. VS. COMMISSIONER OF INCOME TAX, SPECIAL LEAVE TO APP EAL (C) NO.8956/2015 DECIDED ON 06.04.2015 WH EREBY THE SUPREME COURT HAS DISMISSED THE SL P CONFIRMED THE ORDER DATED 09.12.2014 PASSED BY THE GUJARAT HIGH COURT AND OTHER DECISIONS OF THE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY OILCAKE INDUSTRIES VS. COMMISSIONER OF INCOME TAX (2009) 316 ITR 274 8 ITA NO. 730/MUM/2015 (A.Y. 2011 - 12) NITIN AVANTILAL DOSHI VS. CIT(A) (GUJ) AND N.K. INDUSTRIES LTD. VS. DY. C.I.T ., TAX APPEAL NO.240/2003 DECIDED ON 20.06.2016, THE PARTIES ARE BOUND BY THE PRINCIPLE OF LAW PRONOUNCED IN THE AFORESAID THREE JUDGMENTS. 1 4 . HOWEVER , WE NOTE THAT THIS IS NOT AN APPEAL BY THE R EVENUE. HENCE , IT WILL NOT BE APPROPRIATE TO TAKE AWAY TH E RELIEF ALREADY GRANTED BY THE REVENUE TO THE ASSESSEE. HENCE , WE CONFIRMED THE ORDER OF LEARNED CIT ( A ). 1 5 . IN THE RESULT , THIS APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.10.2017 SD/ - SD/ - ( AMARJIT SINGH ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 03.10.2017 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI