ASST CIT 25(3), MUMBAI V. MUKESH K. DESAI, MUMBAI

ITA 7357/MUM/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 0031 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 14-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Bogus purchase; Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 133(6); 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ ITA NO. 7357 / MUM/ 201 6 ( / ASSESSMENT YEAR: 2011 - 12 ) THE ASST. COMMISSIONER OF INCOME TAX - 25(3), ROOM NO. 601, C - 10, 6 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400051 VS. SHRI MUKESH K. DESAI, 9, 2 ND FLO OR, MADHUKUNJ, V.S. KHANDEKAR ROAD, VILE PARLE (EAST), MUMBAI - 400057 ./ ./ PAN/GIR NO. : AABPD 778 D ( / APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY : SHRI V. JENARDHANAN ( D R) / ASSESSEE BY : NONE / DATE OF HEARING : 17/08 /2017 / DATE OF PRONOUNCEMENT : 23 / 10 / 2017 / O R D E R PER RAM LAL NEGI, JM THIS APPEA L HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 29/09/2016 PASSED BY THE LD. COMMISS IONER OF INCOME TAX (APPEALS) - 37 , MUMBAI , PERTAI NING TO THE ASSESSMENT YEAR 2011 - 12 , WHER EBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AN INDIVIDUAL ENGAG ED IN THE BUSINESS OF RENTING OF COMPUTER, PERIPHERALS, LAPTOP AND SERVER ETC. FILED HIS RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 40,05,050/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, ON THE BASIS OF INFORMATION 2 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 RECEIVED FROM THE SALES TAX DEPARTMENT REGARDING BOGUS PURCHASES MADE BY VARIOUS COMPANIES INCLUDING THE PRESENT ASSESSEE FROM HAWALA DEALERS WHICH USED TO ISSUE BOGUS BILLS, THE ASSESSMENT WAS RE - OPENED U/S 147 OF THE ACT BY ISSUING NOTICES U/S 148 OF THE ACT. IN RESP ONSE TO NOTICES U/S 143(2) AND 142(1) THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FURNISHED THE DETAILS CALLED FOR. AS PER THE INFORMATION, THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION MADE BOGUS PURCHASES TO THE TUNE OF RS. 2,98,82,729/ - FROM SEVEN BOGUS ENTITIES MENTIONED IN THE ASSESSMENT ORDER. 3. ACCO R DINGLY, AO ISSUED NOTICES U/A 133(6) OF THE ACT, TO THE PARTIES CONCERNED, HOWEVER, THE SAME WERE RECEIVED BACK UN - SERVED. THE ASSESSEE WAS FURTHER ASKE D TO PRODUCE THE PARTIES OR SUBMIT CONFIRMATION FROM THEM, BUT THE ASSESSEE NEITHER PRODUCED THE PARTIES BEFORE THE AO NOR FILED CONFIRMATION. SO, THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE PURCHASES IN QUESTION . ACCORDINGLY, SHOW CAUSE NOTIC E WAS ISSUED AS TO WHY THE AMOUNT OF BOGUS PURCHASES SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE PURCHASES WERE GENUINELY MADE AND T O SUBSTANTIATE ITS CLAIM, THE ASSESSEE SUBMITTED COPIES OF BILLS AND INVOICES, DETAIL S OF PAYMENTS MADE COPY OF BANK STATEMENTS ETC. THE ASSESSEE HOWEVER, FAILED TO PRODUCE CONFIRMATION FROM THE PARTIES. SINCE, THE ASSESSEE COULD NOT SATISFY THE AO BY PRODUCING SUFFICIENT EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION, THE AO MADE AD DITION OF RS. 2,98,82,729/ - TO THE INCOME OF THE ASSESSEE . FURTHER, THE ASSESSEE HAD CLAIMED DEPRECIATION @ 60% IN RESPECT OF COMPUTERS USED ONE YEAR , THE AO DISALLOWED THE DEPRECIATION CLAIMED AMOUNTING TO RS. 23,51,273/ - ON THE GROUND THAT THE PURCHASES M ADE WERE BOGUS. SIMILARLY, AO DISALLOWED THE DEPRECIATION OF RS. 32,26,264/ - CLAIMED BY THE ASSESSEE @ 30% IN RESPECT OF COMPUTERS USED FOR LESS THAN SIX MONTHS FOR THE SAME REASONS. ACCORDINGLY, AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 3,94,65 ,320/ - 3 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 4. FEELING AGGRIEVED, THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE PARTLY ALLOWED THE APPEAL AND RESTRICTED THE ADDITION TO 12.5% OF THE AMOUNT OF BOGUS PURCHASES DEBITED TO THE TRADING ACCOUNT I.E., RS. 1,44,76,073/ - . AGAINST THE SAID ORDER THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUND S OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN RESTRICTING THE PROFIT @ 12.5% OF RS. 1,44,76,073/ - ON ACCOUNT OF BOGUS PURCHASES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT CONS IDERING THAT THE ADDITION WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM DIT (INV) AND SALES TAX DEPARTMENT, MAHARASHTRA WITH REGARD TO BOGUS PURCHASES MADE BY THE ASSESEE FROM DEALERS WITHOUT SUPPLY OF ACTUAL GOODS. 3. ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT CONSIDERING THAT THE HAWALA DEALERS HAVE ADMITTED ON OATH BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE NOT SOLD ANY MATERIAL TO ANYBODY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT CONSIDERING THAT THE NOTICES U/S 133(6) ISSUED TO PURCHASE PARTIES WERE RETURNED BACK UNSERVED AND THE ASSESSEE ALSO FAILED TO PROVE THE GENUINENESS OF THE TRANSACTIONS OR PRODUCE THE CONFIRMATION OF THE PARTIES. 5. O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN ESTIMATING THE PROFIT AT 12.5% ON THE TOTAL ALLEGED BOGUS PURCHASES FROM HAWALA OPERATOR. 4 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT ( A) HAS ERRED IN TREATING PURCHASES OF RS. 1,54 ,06,653/ - AS CAPITAL EXPENDITURE WHEREAS THERE IS NO EVIDENCE ADDUCED BY THE ASSESSEE TO SUBSTANTIATE THE PURCHASE AND USE OF THE NEW CAPITAL ASSET. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT (A) HAS ERRED IN DISALLOWING THE DEPRECIATION @ 12.5% OF TOTAL DISALLOWANCE OF RS. 55,77,537/ - . 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN RELYING UPON THE DECISION IN THE CASE OF CIT VS. SIMI T P. SETH 356 ITR 451 (GUJ), IN AS MUCH THAT NO INDEPENDENT ENQUIRES WERE CONDUCTED BY THE AO IN THAT CASE, WHEREAS IN THE INSTANT CASE, INQUIRIES WERE CONDUCTED AND ADVERSE FINDING WERE ALSO COMMUNICATED TO THE ASSESSEE AND HENCE THE RATIO LAID DOWN THERE IN ARE NOT APPLICABLE TO THE INSTANT CASE. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN NOT APPRECIATING THE RATIOS LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. LA MEDICA (2001) 59 DRJ 404. 10. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT (A) ERRED IN NOT APPRECIATING THE RATIOS LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY PROTEINS LTD. VS. CIT (2015) 58 TAXMANN.COM 44. 6. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE LD.CIT (A) HAS WRONGLY RESTRICTED THE ADDITION TO 12.5% OF THE BOGUS PURCHASES MADE BY THE ASSESSEE DURING THE RELEVANT YEAR. SINCE, THE ASSESSEE HAS FAILED TO PROVE GENUINENESS OF THE TRANSACTION, THE LD . CIT(A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AO. THE LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY FOLLOWED THE DECISION OF THE HON,BLE GUJARAT HIGH COURT RENDERED IN CIT VS. SMITH P SETH 5 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 356 ITR 451(GUJ) AS IN THAT CASE THE AO HAD NOT MADE ANY INDEPENDENT ENQUIRIES WHERE AS IN THE PRESENT CASE AFTER CONDUCTING ENQUIRY FINDINGS WERE COMMUNICATED TO THE ASSESSEE. ON THE OTHER HAND THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN CIT V S. LA MEDICA (2001) 59 DRJ 404 . WITHOUT PREJUDICE, THE LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN VIJAY PROTEINS LTD. VS. CIT(2015) 58 TAXMANN. C OM 44. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT(A) SUBMITTED THAT SINCE THE ASSESSEE HAS FURNISHED THE COPIES OF PURCHASE INVOICES, DETAILS OF ASSETS PURCHASED, BANK STATEMENTS ETC. AND FURTHER PROVED THAT THE PAYMENTS WERE M ADE THROUGH BANKING CHANNELS, THE LD. CIT (A) HAS RIGHTLY RESTRICTED THE ADDITION MADE BY THE AO. THE LD. COUNSEL FURTHER SUBMITTED THAT SINCE, THE FINDINGS OF THE LD. CIT(A) IS BASED ON THE LAW LAID DOWN BY THE VARIOUS HIGH COURTS AND THE DECISIONS OF THE VARIOUS BENCH OF THE INCOME TAX APPELLATE TRIBUNAL, THERE IS NO MERIT IN THE REVENUES APPEAL THEREFORE THE SAME IS LIABLE TO BE DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ENTIRE RECORD AND ALSO GONE THROUGH THE CASES RELIED UPON B Y THE AUTHORITIES BELOW AS WELL AS REFERRED BEFORE US. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) HAS WRONGLY RESTRICTED THE ADDITION MADE BY THE ASSESSEE TO 12.5% OF THE AMOUNT DEBITED TO THE TRADING ACCOUNT. THE OPERATIVE PART OF THE IMPUG NED ORDER READS AS UNDER: CONSIDERING THE TOTALITY OF FACTS BEFORE ME, AS WELL AS THE JUDICIAL OPINION AVAILABLE, I AM INCLINED TO AGREE WITH THE APPELLANTS STAND THAT THE ADDITION IS EXCESSIVE. THE A.O. HAS DISALLOWED THE AMOUNT OF RS.2,98,82,729/ - ON ACCOUNT OF BOGUS PURCHASES. IT IS EVIDENT FROM SUBMISSION OF THE APPELLANT THAT OUT OF TOTAL PURCHASES OF RS. 2,98,82,729/ - , THE APPELLANT HAD DEBITED ONLY RS. 1,44,76,073/ - TO THE TRADING ACCOUNT AND REVENUE PURCHASE OF RS. 1,54,06,653/ - TRANSFER TO 6 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 THE FI XED ASSETS AND IT WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE SAID PURCHASES ARE IN THE NATURE OF FIXED ASSETS AND CAPITALIZED UNDER THE HEAD OF COMPUTER. NO AMOUNTS OUT OF SAID PURCHASES HAVE BEEN CLAIMED AS DEDUCTION IN PROFIT AND LOSS ACCOUNT. I N OTHER WORDS, THE SAME IS NOT A REVENUE EXPENDITURE, THEREFORE, DISALLOWANCE MADE BY A. O. CANNOT BE JUSTIFIED. HENCE , A. O. IS DIRECTED TO DELETE THE ADDITION OF RS. 1,54,06,653/ - . HOWEVER, THE A.O. HAS DISALLOWED THE DEPRECIATION OF RS. 55, 77, 537/ - . T HE SAID DISALLOWANCE APPEARS EXCESSIVE. THEREFORE, A. O. IS DIRECTED TO DISALLOW THE DEPRECIATION 12.5% ON TOTAL DISALLOWANCE OF RS. 55, 77, 537/ - I.E.,RS.6,97,192/ - . THE APPELLANT THEREFORE GETS RELIEF OF RS. 48, 80, 345/ MINUS (RS 55, 77, 537 - 6, 97, 192 / ). 5:13 FURTHER, THE APPELLANT HAS DEBITED ALLEGED PURCHASE OF RS 1, 44, 76, 073/ AND THE A. O. HAS DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT . THE DISALLOWANCE APPEARS TO BE EXCESS, I AM OF THE VIEW THAT ESTIMATION OF PROF IT AT 12.5% WOULD MEET THE ENDS OF JUSTICE. THEREFORE, I DIRECT THE AO TO ESTIMATE PROFIT OF 12.5% ON THE TOTAL PURCHASES IN QUESTION WHICH WORKS OUT TO RS. 18, 09, 509/ (12.5% OF RS. 1, 44, 76, 073/ ). THE APPELLANT THEREFORE GETS RELIEF OF RS. 1, 26, 66 , 564/ ( RS. 144, 76, 073 MINUS R S. 18, 09, 508). THE GROUNDS RAISED ARE PARTY ALLOWED. 9. WE NOTICE THAT FINDINGS OF THE LD. CIT(A) ARE BASED ON THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN CIT VS. SIMIT P. SETH 356 ITR 451(GUJ) . AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND ACCEPTED THE SALES SHOWN BY THE ASSESSEE. SINCE, THE AO HAS NOT REJECTED THE SALES SHOWN DURING THE RELEVANT YEAR, THE ENTIRE AMOUNT OF PURCHASES CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE AS THERE CANNOT BE SALE WITHO UT ANY PURCHASE. IF THE ASSESSEE HAD NOT PURCHASED THE GOODS IN QUESTION FROM THE PARTIES CONCERNED, IT IMPLIES THAT PURCHASES WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT . UNDER THESE CIRCUMSTANCES, THE LD. CIT(A) HAS RES TRICTED THE ADDITION KEEPING IN VIEW THE PROFIT ELEMENT EMBEDDED IN THE PURCHASES IN QUESTION. 7 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 10 . THE HONBLE BOMBAY HIGH COURT IN CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD. 372 ITR 619 (BOM) , WHILE UPHOLDING THE DECISION OF MUMBAI TRIBUNAL, HAS OBSERV ED THAT MERELY BECAUSE THE SUPPLIERS HAD NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE CIT (A) ONE COULD NOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE RESPONDENT/ASSESSEE. THE HONBLE GUJRAT HIGH COURT IN CIT VS. SIMIT P. SETH ( SUPRA ) UPHELD THE DECISION OF THE TRIBUNAL AND SUSTAINED THE ADDITION 12.5% OF THE TOTAL BOGUS PURCHASES HOLDING THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO INCOME OF THE ASSESSEE. HENCE, IN VIEW OF THE LAW LAID DOWN BY THE HONBLE HIGH COURTS OF BOM BAY AND GUJARAT, DISCUSSED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). WE, THEREFORE UPHELD THE FINDINGS OF THE LD. CIT(A) AND DISMISS ALL THE GROUNDS OF APPEAL OF THE REVENUE AND DIRECT THE AO TO COMPUTE THE ADDITION IN TERMS OF THE CIT(A) ORDER. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 20 11 - 12 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2017 . SD/ - SD/ - ( RAJENDRA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 23 / 10 / 2017 ALINDRA, PS 8 ITA NO. 7357 /MUM/2016 ASSESSMENT YEAR: 2011 - 12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / TH E CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MU MBAI