ITO 10(3)(3), MUMBAI V. PAVITRA JEWELLERY P, LTD, NAVI MUMBAI

ITA 7335/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9791 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DINESH JOTHAWAT
• Keywords: Bogus purchase; Unexplained investment; Rectification of order; Accommodation entries
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 7335 / MUM/20 1 6 ( ASSESSMENT YEAR : 2007 - 08 ) INCOME TAX OFFICER 10(3)(3) R.NO.213, 2 ND FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 V S. M/S. PAVITRA JEWELLERY PVT. LTD., 25, G & Q, LAXMI INDUSTRIAL ESTATE, GROUND FLOOR, NEW LINK ROAD, ANDHERI (W) MUMBAI 400 058 PAN/GIR NO. AAACP2685B ( APPELLANT ) .. ( RESPONDENT ) CO NO.170/MUM/2017 (ARISING OUT OF ITA NO. 7335 /MUM/20 16) ( ASSESSMENT Y EAR : 2007 - 08 ) M/S. PAVITRA JEWELLERY PVT. LTD., 25, G & Q, LAXMI INDUSTRIAL ESTATE, GROUND FLOOR, NEW LINK ROAD, ANDHERI (W) MUMBAI 400 058 VS. INCOME TAX OFFICER 10(3)(3) R.NO.213, 2 ND FLOOR AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 PAN/GIR NO. AAACP2685B ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI SUHAS KULKARNI ASSESSEE BY SHRI DINESH JOTHAWAT AND SHRI BHARAT GANDHI DATE OF HEARING 29 / 11 /2018 DATE OF PRONOUNCEMENT 05 / 12 /2018 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 17, MUMBAI DATED 21/09/2016 FOR ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 2 A.Y.2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN ITS APPEAL: - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CU(A) IS ERRED IN DELETING THE ADDITION OF RS. 1,67,61,459 MADE ON ACCOUNT OF NON GENUINE PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO EXPLAIN THE SOURCES FOR MAKING CASH PURCHASES, THE AO HAD TREATED THE ALLEGED DOUBTFUL PURCHASES AS UNEXPLAINED INVESTMENT IN STOCK U/S 69 OF THE ACT.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE TO 2% OF THE ALLEGED PURCHASES AMOUNTING TO RS. 3,35,229/ - RELYING ON THE ITAT DECISION IN THE CASE OF INNOVATORS FACADE, WITHOUT APPRECIATING THE FACT THAT THE AO HAD NEVER TREATED IT A BOGUS BUT INSTEAD SUCH EXPENDITURE INCURRED IN SUCH PURCHASES WAS TREATED AS UNEXPLAINED U/S. 69 OF THE ACT.' 3. 'THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE AFORESAID GROUNDS OR ADD A NEW GROUND OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL .' THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A), MUMBAI ON THE ABOVE DIRECTIONS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. CROSS OBJECTION FILED IS IN SUPPORT OF CIT(A)S ORDER. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING, EXPORTING OF DIAMONDS STUDDED JEWELLERY, ETC., IN THIS CASE, RETURN WAS FILED BY THE ASSESSEE ON 20/10/2007 DECLARING TOTAL INCOME OF RS.14,14,090/ - . SUBSEQUENTLY THE CASE WAS PROCESSED U/S.143(1) ON 24/10/2008 ACCEPTING THE RETURNED INCOME AS ASSESSED INCOME. SUBSEQUENTLY, THE AO GOT INFORMATION FROM THE INVESTIGATION WING TO THE EFFECT THAT ASSESSEE HAD MADE PURCHASES FROM THE CONCERNS MANAGED BY ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 3 SHRI RAJENDRA SOHANL AL JAIN ETC., WHEREIN IT WAS FOUND THAT THEY WERE ENGAGED IN THE PROVIDING ACCOMMODATION ENTRIES. AS PER THE INFORMATION SO OBTAINED, ASSESSEE HAD MADE PURCHASES OF WHICH RS.2,03,84,140/ - FROM THE ALLEGED CONCERNS INVOLVED IN BOGUS TRANSACTION. ACCORDINGLY , AO ADDED THE ENTIRE AMOUNT IN ASSESSEES INCOME. 5. BY THE IMPUGNED ORDER, CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES AFTER HAVING THE FOLLOWING OBSERVATIONS . AGAINST WHICH REVENUE IS IN FURTHER APPEAL BEFORE US. THE OB SERVATION OF CIT(A) WAS AS UNDER: - THE APPELLANT SUBMITTED SALES, GROSS PROFIT & NET PROFIT CHART SINCE MARCH 2006 TO MARCH 2015 AS UNDER : - YEAR ENDING NET SALES GP GP% NP NP% 2006 11,442,739 1,795,275 15.69 181,243 1.58 2007 85,095,538 5 ,911,612 6.95 2,278,945 2.68 2008 110,056,040 7,379,273 6,71 1,964,308 1.78 2009 174,485,914 7,508,509 4.30 2,613,741 1.50 2010 142,975,343 9,078,230 6.35 2,016,337 1.41 2011 192,899,350 13,489,227 6.99 2,407,704 1.25 2012 219,450,665 17,765,925 8.10 2,291,520 1.04 2013 256,109,064 19,878,177 7.76 2,578,534 1.01 2014 286,988,703 21,756,534 7.58 2,728,003 0.95 2015 306,748,912 18,489,938 6.03 2,685,340 0.88 ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 4 7. I AM CONSIDERING THE ALTERNATIV E ARGUMENTS GIVEN BY THE APPELLANT WHICH IS AGREEMENT WITH THE NATURE OF BUSINESS, INDUSTRY, GROSS PROFIT, GROSS PROFIT PERCENTAGE & NET PROFIT PERCENTAGE. FURTHER, THE GROWTH OF TURNOVER AND CONSISTENCY IN GROSS PROFIT AS WELL AS NET PROFIT. THE PRIMARY ONUS OF PURCHASES HAS BEEN DISCHARGED BY THE APPELLANT WITH CORRESPONDING SALES AND THE BOOKS OF ACCOUNTS ARE AUDITED. THE STOCK REGISTER IS MAINTAINED, CONSUMPTION OF MATERIAL IS PROVED. THE AO HAS NOT QUESTIONED THE SALES AND ALL THE PAYMENTS HAS BEEN RO UTED THROUGH ACCOUNT PAYEE CHEQUES WHERE THE IDENTITY OF PURCHASES HAVE BEEN PROVED. THE EARLIER YEAR PURCHASES HAS BEEN ALLOWED. IT WAS SUBMITTED THAT YIELD SHOWN BY THE ASSESSEE IN THE ASSESSMENT IS ACCEPTED, WHATEVER THE ANGLE ONE MAY LOOK AT THE FACTS OF THE CASE AND DISPUTED PURCHASES. ONCE THE SALES ARE ACCEPTED THERE HAS TO BE CORRESPONDING PURCHASES AND CREDIT OF SAME HAS TO \ BE ALLOWED \ FROM THE RECORD WE FOUND THAT ASSESSEE HAD SHOWN GP RATE OF 6.95% AND NP RATE OF 2.68% IN THE ASSESSMENT YEAR, WHICH IS MUCH BETTER THAN THE GROSS PROFIT RATE SHOWN IN THE ASSESSMENT YEAR. MOREOVER THE GP RATE SHOWN BY THE ASSESSEE IS COMPARABLE TO THE GP RATE SHOWN BY OTHER ASSESSEE ENGAGED IN SIMILAR TRADE. THE AO HAS ADDED RS.I,67,61,460 / - (AFTER RECTIFICATION OF MISTAKE) OF THE ALLEGED PURCHASES FROM ABOVE FOUR PARTIES I.E. AVI EXPORTS, SPARSH EXPORTS PVT. LTD., SUN DIAM AND VITRAG JEWELS TREATING IT AS BOGUS ONE. HOWEVER, THE AO HAS NOT DISPUTED THE SALES. LOGICALLY WITHOUT PURCHASES, SALES CANNOT BE MADE AND THEREFORE I AM OF THE CONSIDERED OPINION DISALLOWING ENTIRE PURCHASES IS NOT A FAIR ONE. THE AR OF THE APPELLANT ALSO BROUGHT TO MY NOTICE THE LATEST IT AT JURISDICTIONAL DECISION IN THE CASE OF INNOVATORS FACADE VS. ACIT(CIR - 2), THANE, ITA NO. 5450, 5451 AND 5452/MUM/2015 DTD. 20.07.2016 WHEREIN . IT IS HELD THAT - 'FROM THE RECORD WE FOUND THAT ASSESSEE HAD SHOWN GP RATE OF 16.39% AND 23.49 IN THE ASSESSMENT YEAR 2009 - 10 AND. 2010 - 11, WHICH IS MUCH BETTER THAN THE GROSS PROFIT RATE SHOWN IN THE ASSESSMEN T YEAR 2008 - 09 AT II.41%. MOREOVER THE GP RATE SHOWN BY THE ASSESSEE IS COMPARABLE TO THE GP RATE SHOWN BY OTHER ASSESSEE ENGAGED IN SIMILAR TRADE. HOWEVER, TO SAFEGUARD THE INTEREST OF REVENUE AND TO COVER THE LEAKAGE OF REVENUE, IF ANYONE, AND ALSO TOTAL ITY OF FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US, WE DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES MADE. WE DIRECT ACCORDINGLY. FACTS AND CIRCUMSTANCES IN THE YEAR 2010 - 11 AND 2011 - 12 ARE PARI MATERIAL, FOLLOWING THE REASONING GIVEN \ HEREINABOVE, WE RESTRICT THE ITA NO. 5450 TO 5452/MUM/2015 ASSESSMENT YEAR 2009 - 10 TO 2011 - 12 ADDITIONS IN I THESE YEARS ALSO TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES SO MADE. WE DIRECT ACCORDINGLY. ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 5 I RESPECTFULLY FOLLOWING THE IT AT MUMBAI'S JURISDICTION DECISION CITED ABOVE AND CONSIDERING THE GP AND NP RATE OF THE APPELLANT, I AM OF THE CONSIDERED OPINION THAT THE ADDITION TO THE EXTENT OF 2% ON THE ALLEGED BOGUS PURCHASE WILL MEET THE END OF JUSTICE. I, THEREFORE, DIRECT THE AO TO RESTRICT THE ADDITION OF RS. 3,35,229/ - AND DELETE THE BALANCE ADDITION OF RS. 1,64,26,2307 - . ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US AND ASSESSEE HAS ALSO FI LED CROSS OBJECTION WHEREIN HE HAS SUPPORTED THE ORDER PASSED BY CIT(A). 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHOR ITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LEARNED AR AND DR DURING THE COURSE OF HEARING IN THE FACTUAL MATRIX OF THE CASE. IN THIS CASE, AO HAS MADE ADDITION ON THE BASIS OF INFORMATION FROM SALES TAX DEPARTMENT REGARDING BOGUS PURCHASES HAVING BEEN MADE BY THE ASSESSEE. THE CIT(A) OBSERVED THAT T HE PRIMARY ONUS OF PURCHASES HAS BEEN DISCHARGED BY THE ASSESSEE WITH CORRESPONDING SALES AND THE BOOKS OF ACCOUNTS ARE AUDITED. THE STOCK REGISTER IS MAINTAINED, CONSUMPTION OF MATERIAL IS PROVED. THE AO HAS NOT QUESTIONED THE SALES AND ALL THE PAYMENTS HAS BEEN ROUTED THROUGH ACCOUNT PAYEE CHEQUES WHERE THE IDENTITY OF PURCHASES HAVE BEEN PROVED. THE EARLIER YEAR PURCHASES HAS BEEN ALLOWED. 8. THE CIT(A) FURTHER ANALYSED NET PROFIT AND GROSS PROFIT SHO WN BY THE ASSESSEE AND FOUND THAT GROSS PROFIT SHOWN BY THE ASSESSEE DURING ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 6 THE YEAR UNDER CONSIDERATION ARE BETTER. THE CIT(A) ALSO RECORDED A FINDING TO THE FACT THAT ADDITION MADE BY AO AFTER RECTIFICATION AMOUNTING TO RS.1,67,61,460/ - OF THE ALLEGED BO GUS PURCHASES, HOWEVER, AO HAS NOT DISPUTED THE CORRESPONDING SALES, THEREFORE, LOGICALLY ENTIRE PURCHASES CANNOT BE ADDED IN SO FAR AS WITHOUT PURCHASES THERE CANNOT BE SALES. AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS, THE CIT(A) UPHELD THE ADDITI ON TO THE EXTENT OF 2% OF ALLEGED PURCHASES. NOTHING WAS PLACED ON RECORD BY LEARNED DR TO CONTROVERT THE FINDINGS OF CIT(A) WITH REGARD TO GROSS PROFIT SHOWN BY THE ASSESSEE AND THE PRIMARY ONUS DISCHARGED BY THE ASSESSEE WITH RESPECT TO THE CORRESPONDING SALES, STOCK REGISTER, CONSUMPTION OF MATERIAL HAVING BEEN PROVED. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCE D IN THE OPEN COURT ON THIS 05 /12 /201 8 SD / - ( AMARJIT SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 05 / 12 /201 8 KARUNA SR. PS ITA NO. 7335/MUM/20 16 & CO NO.170/MUM/2017 M/S. PAVITRA JEWELLERY PVT. LTD., 7 C OPY 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//