SANDEEP KEWALCHAND MEHTA, MUMBAI V. ACIT 31(3), MUMBAI

ITA 7368/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8798 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 14-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Keywords: Bogus purchase; Opportunity of cross examination; Accommodation entries
• Section: 143(3); 133(6); 147

Judgement Text

1 ITA NO.7368/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.7368/MUM/2016 (ASSESSMENT YEAR: 2009-10) SHRI SANDEEP KEWALCHAND MEHTA, B/3, SAIBABA ENCLAVE BUILDING-3, CD BAUGH, GOREGAON (W), MUMBAI-62 PAN : AFNPM2440Q VS ACIT 13(3), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI BHUPENDRA SHAH RESPONDENT BY SHRI M.V. RAJGURU DATE OF HEARING 12-10-2017 DATE OF PRONOUNCEMENT 31-10-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-42, MUMBAI DATED 09-08-2016 AND IT PERTAINS TO AY 2009- 10. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION, FILE D HIS RETURN OF INCOME FOR THE AY 2009-10 ON 30-09-2009 DECLARING TOTAL INCOME OF RS.44,08,204. BASICALLY, THE CIVIL CONSTRUCTION WORKS CARRIED OUT BY THE ASS ESSEE IS IN THE NATURE OF ROAD REPAIRING AND DEBRIS CLEARING FOR BMC, A LOCAL BODY . IN THIS CASE, THE 2 ITA NO.7368/MUM/2016 ASSESSMENT WAS COMPLETED U/S 143(3) ON 28-11-2011 D ETERMINING A TOTAL INCOME OF RS.47,92,956. SUBSEQUENTLY, THE AO RECEI VED INFORMATION FROM THE OFFICE OF THE DGIT (INV), MUMBAI TO THE EFFECT THAT THE ASSESSEE HAS BEEN A BENEFICIARY OF BOGUS PURCHASE BILLS ISSUED BY HAWAL A OPERATORS LISTED BY THE SALES-TAX DEPARTMENT. BASED ON THE INFORMATION, TH E AO REOPENED THE ASSESSMENT ON THE GROUND THAT INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME-TAX ACT, 1961. IN RESPONSE TO NOTICES U/S 143(2) AND 142(1), THE AUTH ORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE D ETAILS, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE HAS PURCHASED FROM 3 PARTIES, VIZ. OM CORPORATION, RAJ TRADERS, AND SUNRISE ENTERPRISES AMOUNTING TO RS.43,48,834. THE AO, FUR THER OBSERVED THAT ALL THE ABOVE THREE PARTIES APPEARED IN THE LIST OF HAWALA OPERATORS PREPARED BY SALES- TAX DEPARTMENT, THEREFORE, CALLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS TO JUSTIFY PURCHASES FROM THOSE PARTIES. I N RESPONSE TO NOTICE, THE ASSESSEE HAS FILED COPIES OF PURCHASE BILLS AND COP Y OF BANK STATEMENT TO PROVE PAYMENT AGAINST SUCH PURCHASES HOWEVER, STATED THAT THE SAID PARTIES HAVE NOT PAID VAT TO THE CTO, THEREFORE, THEY HAVE BEEN DECL ARED A HAWALA OPERATORS. THE AO, AFTER CONSIDERING NECESSARY SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THOUGH THE ASSESSEE HAS FILED CERTAIN DOCUMENTS LIK E PURCHASE BILLS AND 3 ITA NO.7368/MUM/2016 PAYMENT PROOF, BUT FAILED TO JUSTIFY THE PURCHASES WITH FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS OF THE SALES-TAX DEPARTM ENT THAT THE PARTIES ARE HAWALA OPERATORS INDULGING IN PROVIDING ACCOMMODATI ON ENTRIES. THEREFORE, HE OPINED THAT PURCHASES FROM THE ABOVE PARTIES ARE BO GUS IN NATURE AND ACCORDINGLY DISALLOWED TOTAL PURCHASES FROM ABOVE P ARTIES OF RS.43,48,834 AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AG GRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 3. BEFORE THE CIT(A), ASSESSEE REITERATED ITS SUBMISSI ONS MADE BEFORE THE AO. IT WAS FURTHER SUBMITTED THAT PURCHASES FROM T HE ABOVE PARTIES CANNOT BE DECLARED BOGUS MERELY ON THE BASIS OF STATEMENT OF THIRD PARTY IGNORING EVIDENCES FILED BY THE ASSESSEE LIKE PURCHASE BILLS , DELIVERY CHALLANS AND PAYMENT PROOF. THE ASSESSEE FURTHER SUBMITTED THAT HIS PURCHASES ARE SUPPORTED BY VALID PURCHASE BILLS AND ALSO PAYMENT HAS BEEN MADE THROUGH PROPER BANKING CHANNELS. THE AO HAS NOT MADE OUT A NY CASE OF SALES OUTSIDE THE BOOKS OF ACCOUNT NOR POINTED OUT ANY DISCREPANC Y IN STOCK REGISTERS. THE AO HAS NOT DISPUTED THE SALES DECLARED BY THE ASSES SEE. IN THE ABSENCE OF ANY FINDING AS TO THE INCORRECTNESS OF BOOKS OF ACCOUNT AND STOCK DETAILS, MERELY ON THE BASIS OF INFORMATION RECEIVED FROM SALES-TAX DE PARTMENT, PURCHASES CANNOT BE DOUBTED. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRECEDENTS O BSERVED THAT NO EVIDENCE OF 4 ITA NO.7368/MUM/2016 WORK DONE FOR BMC IS FURNISHED. THE ASSESSEE ALSO COULD NOT CO-RELATE THE PURCHASE OF ANY ACTUAL WORK DONE. IN FACT, THE ASS ESSEE HAS REMAINED COMPLETELY SILENT ON THE ISSUE OF ACTUAL WORK EXECU TED. THE DOCUMENTS GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDING S CLEARLY INDICATES THAT PURCHASES FROM THE ABOVE PARTIES ARE BOGUS IN NATUR E. THE UNSIGNED BILLS, DELAYED PAYMENTS, THE WITHDRAWAL OF THE PAYMENTS FR OM THE BANK ACCOUNT OF M/S SUNRISE ENTERPRISES AND THE INABILITY OF THE AS SESSEE TO CO-RELATE THE PURCHASES MADE FROM THE HAWALA DEALERS UNDOUBTEDLY PROVE THE FACT THAT THE ASSESSEE HAS ONLY TAKEN BOGUS BILLS OF PURCHASES TO REDUCE ITS TAXABLE INCOME. WITH THESE OBSERVATIONS, THE CIT(A) CONFIRMED ADDIT IONS MADE BY THE AO TOWARDS BOGUS PURCHASES. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN SUSTAINING ADDITION TOWARDS ALLEGED BOGUS PURCHASES WITHOUT PROVIDING COPY OF AFFIDAVITS / STATEMENT OF SUPPLIERS AND ALSO WITHOU T AFFORDING AN OPPORTUNITY OF CROSS EXAMINATION OF SUCH SUPPLIERS. THE LD.AR FUR THER SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, THE LD.CIT(A) FAILED TO APP RECIATE THAT THE ADDITION TOWARDS ALLEGED BOGUS PURCHASES IS EXCESSIVE AND UN REASONABLE. THE ASSESSEE IS IN THE BUSINESS OF CIVIL CONSTRUCTION AND DERIVE S GROSS PROFIT OF 9.54 TO 10.72% IN THE PRECEDING FINANCIAL YEARS AND ACCORDINGLY IF AT ALL ANY ADDITION IS 5 ITA NO.7368/MUM/2016 WARRANTED, ADDITION MAY BE RESTRICTED TO THE GROSS PROFIT DECLARED BY THE ASSESSEE IN EARLIER YEARS. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 4. WE HAVE HEARD THE PARTIES, PERUSED MATERIAL AVAILAB LE ON RECORD. THE AO MADE ADDITION TOWARDS PURCHASES ON THE BASIS OF INF ORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT WHICH INFORMED THA T THE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ANY BUSINESS ACTIVITY. ACCORDING TO THE AO, NOTICES ISSUED U/AS 133(6) WER E RETURNED UNSERVED. THEREFORE, THE AO OPINED THAT THOUGH THE ASSESSEE H AS FURNISHED CERTAIN EVIDENCES TO JUSTIFY PURCHASES FROM ABOVE PARTIES, BUT FAILED TO PROVE THE GENUINENESS OF PURCHASES IN THE BACKDROP OF CLEAR F INDINGS OF MAHARASHTRA SALES-TAX DEPARTMENT THAT THE PARTIES ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. IT IS THE CONTENTION OF THE ASSESSEE THAT PURCHASES FROM ABOVE PARTIES ARE GENUINE IN NATURE AS ITS PUR CHASES ARE SUPPORTED BY VALID PURCHASE BILLS, DELIVERY CHALLANS AND PAYMENT FOR SUCH PURCHASES HAS BEEN MADE THROUGH PROPER BANKING CHANNELS. THE ASSESSEE FURTHER CONTENDED THAT ADDITIONS CANNOT BE MADE TOWARDS PURCHASES MERELY O N THE BASIS OF THIRD PARTY INFORMATION IGNORING THE EVIDENCES FILED TO JUSTIFY PURCHASES. THE ASSESSEE FURTHER CONTENDED BEFORE THE LOWER AUTHORITIES THAT THE AO NEITHER POINTED OUT ANY ERROR OR DISCREPANCY IN THE BOOKS OF ACCOUN T NOR DID MAKE OUT ANY CASE 6 ITA NO.7368/MUM/2016 OF SALES MADE OUTSIDE THE BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY FINDING AS TO INCORRECTNESS OF BOOKS OF ACCOUNT, ADDITION CANNOT BE MADE TOWARDS BOGUS PURCHASES. 5. HAVING HEARD, WE FIND FORCE IN THE CONTENTION OF TH E ASSESSEE FOR THE REASONS THAT THE AO HAS MADE ADDITIONS ONLY ON THE BASIS OF INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT, IGN ORING THE EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF PURCHASE BILLS, DELI VERY CHALLANS AND PAYMENT PROOF. THE ASSESSEE, ON THE OTHER HAND, FILED CERT AIN EVIDENCES IN THE FORM OF PURCHASE BILLS AND PAYMENT PROOF TO PROVE THE GENUI NENESS OF PURCHASES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ADDIT ION CANNOT BE MADE TOWARDS ALLEGED BOGUS PURCHASES ONLY ON THE BASIS O F INFORMATION RECEIVED FROM MAHARASHTRA SALES-TAX DEPARTMENT. AT THE SAME TIME, IT IS ALSO AN UNDISPUTED FACT THAT THE NOTICES ISSUED U/S 133(6) WERE RETURNED UNSERVED. THE ASSESSEE HAS FAILED TO FURNISH CORRECT ADDRESSE S OF THE PARTIES. UNDER THESE CIRCUMSTANCES, IT IS VERY DIFFICULT TO ACCEPT THAT THE PURCHASES FROM THOSE PARTIES ARE EXPLAINED TO THE SATISFACTION OF THE AO . UNDER THESE FACTS AND CIRCUMSTANCES WHAT NEEDS TO BE TAXED IS ONLY THE PR OFIT ELEMENT IN SUCH PURCHASES BUT NOT THE TOTAL PURCHASES MADE FROM ALL EGED BOGUS PARTIES. THIS VIEW HAS BEEN FURTHER SUPPORTED BY THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF VIJAY PROTIENS LTD (SUPRA) WHEREIN IT WAS H ELD THAT ONLY PROFIT ELEMENT 7 ITA NO.7368/MUM/2016 EMBEDDED IN BOGUS PURCHASES NEEDS TO BE TAXED. WE FURTHER NOTICE THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT LTD 355 ITR 290 (GUJ) OBSERVED THAT WHETHER PURCHASES THEMSELVE S WERE TO BE TAXED OR WHETHER PARTIES FROM WHOM SUCH PURCHASES MADE WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT AND THE TRIBUNAL HAVING EXAMINED T HE EVIDENCE ON RECORD CONCLUDED THAT THE ASSESSEE DID PURCHASE CLOTH AND SOLD GOODS, THE ENTIRE PURCHASE WOULD NOT BE SUBJECTED TO TAX. IN YET ANO THER CASE, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SU PRA) HAS HELD THAT NO UNIFORM YARDSTICK CAN BE APPLIED FOR ESTIMATION OF NET PROF IT WHICH IS DEPENDENT UPON FACTS AND CIRCUMSTANCES OF EACH CASE. THE CO-ORDIN ATE BENCH OF ITAT, MUMBAI IN SEVERAL CASES HAS TAKEN A VIEW THAT ONLY THE PRO FIT ELEMENT EMBEDDED IN BOGUS PURCHASES NEEDS TO BE TAXED. ACCORDINGLY, ES TIMATED NET PROFIT OF 12.5% ON BOGUS PURCHASES. THEREFORE, CONSIDERING THE FAC TS AND CIRCUMSTANCES OF THE CASE AND ALSO BEING CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE VIEW THAT ONLY PROFIT ELEMENT EMBEDDE D IN PURCHASES NEEDS TO BE TAXED. HENCE, WE DIRECT THE AO TO ESTIMATE NET PROFIT OF 12.5% ON TOTAL PURCHASES MADE FROM THE ABOVE PARTIES. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. 8 ITA NO.7368/MUM/2016 ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2017. SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST OCTOBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI