MENORA ASSOCIATES, MUMBAI V. ITO 27 (1)(1), MUMBAI

ITA 7456/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7650 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 27-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTILAKSHMI NAYAK
• Keywords: Bogus purchase; Accommodation entries
• Section: 44AD; 133(6); 274; 72; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH MUM BAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.7456/MUM/2018 ( ASSESSMENT YEAR: 2009-10 ) MENORA ASSOCIATES 101, TITAN HOUSE M.P. VAIDYA MARG GHATKOPAR(E) MUMBAI-400 077 VS. ITO-27(1)(1) 4 TH FLOOR, TOWER NO.6 RAILWAY STATION COMMERCIAL COMPLEX VASHI, NAVI MUMBAI MUMBAI-400 703 PAN/GIR NO. A A OFM4205F APPELLANT ) .. RESP ONDENT ) REVENUE BY SMT. JYOTILAKSHMI NAYAK, DR ASSESSEE BY NONE DATE OF HEARING 21 /01/2020 DATE OF PRONOUNCEME NT 29 /01/2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)25, MUMBAI, DATED 03/10/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ID CIT (A) ERRED IN LAW AND IN FACTS THAT TH E DEFAULTS ON THE PART OF THE SUPPLIERS UNDER THE PROVISIONS OF THE MVAT ACT, WOULD NOT BE SUFFICIENT FOR TREATING PURCHASE AS BOGUS PURCHASE. 2. THE ID CIT (A) ERRED IN SUSTAINING THE ADDITION OF RS- 14, 10,765/- I.E. 12.5% OF PURCHASES OF RS, 1,12, 86,116/- WHICH IS H IGHLY EXCESSIVE AND UNJUSTIFIED. ITA NO.7456/MUM/2018 MENORA ASSOCIATES 2 3. THE ID CIT (A) HAS ERRED IN LAW AND IN FACTS IN ALLEGING THAT PURCHASES ARE BOGUS PURCHASES WITHOUT BRINGING ON RECORD ANY INDEPENDENT AND RELIABLE EVIDENCE. 4. THE ID CIT (A) HAS ERRED IN FACTS THAT THE FIRM HAS SHOW A PROFIT OF 26% OF THE TOTAL REVENUE. AS PER SECTION 44AD OF THE IN COME TAX DEPARTMENT EXPECTS THE CONSTRUCTIONS FIRMS TO REPORT NET PROFI T OF 8%. 5. THE APPELLANT CRAVES LEAVE TO REVISE, MODIFY, AL TER OR DELETE ANY OF THE GROUNDS OF APPEAL OR TO ADD NEW GROUNDS OF APPEAL, PRAYER- I) ADDITION OF RS. 14,1G,765/- BE DELETED, II) ANY OTHER RELIEF, AS DEEMED FIT, MAY BE ALLOWED . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM, WHICH IS ENGAGED IN THE BUSINESS OF CONSTRUCTION CONTRACTS, FILED ITS RETURN OF INCOME FOR AY 2009-1 0 ON 04/09/2009, DECLARING TOTAL INCOME AT RS.2,94,17,271/-. THEREAF TER, THE CASE HAS BEEN REOPENED U/S 147 OF THE ACT, ON THE BASIS OF I NFORMATION RECEIVED FROM DGIT, INVESTIGATION, MUMBAI, AS PER W HICH, SALES TAX AUTHORITIES OF GOVERNMENT OF MAHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HAWALA DEALERS, WHO HAD ISSUED BOGUS PURC HASE BILLS TO VARIOUS PARTIES IN MUMBAI AND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE OF THE BENEFICIA RY, WHO HAD TAKEN ACCOMMODATION BILLS OF BOGUS PURCHASES FROM VARIOUS PARTIES AS LISTED BY THE AO IN PARA 4 OF HIS ASSESSMENT ORDER AMOUNTING TO RS. 1,12,86,116/-. THE CASE WAS SELECTED FOR SCRUTINY A ND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3).R.W.S. 14 7 OF THE I.T.ACT, 1961 ON 26/03/2015 AND DETERMINED TOTAL IN COME OF RS. 3,08,28,040/-, AFTER MAKING 12.50% ADDITIONS TOWARD S ALLEGED BOGUS PURCHASE FROM THOSE PARTIES AND MADE ADDITIONS OF R S.14,10,765/-. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE NEITHER APPEARD NOR FILED ANY DETAILS IN SUPPORT OF ITS CASE. THE ITA NO.7456/MUM/2018 MENORA ASSOCIATES 3 LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJA RAT HIGH COURT, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) H AS UPHLED ADDITION MADE BY THE AO TOWARDS 12.50% PROFIT ON AL LEGED BOGUS PURCHASES. THE RELEVANT FINDINGS OF THE LD.CIT(A) A RE AS UNDER:- 5.2 HAVING CONSIDERED THE ASSESSMENT ORDER OF THE AO AND APPELLANTS STATEMENT OF FACTS, IT IS SEEN THAT THE MAIN PLANK OF ASSESSEES ARGUMENTS REGARDING THE GENUINENESS OF THE PURCHASES WAS THAT THE PAYMENT HAS BEEN MADE BY CHEQUE/BANKING CHANNELS WHICH HAS NOT FOUND FAVOUR WITH COURTS/TRIBUNALS PRONOUNCEMENTS LIKE IN THE CASE OF THE M/S. KANCHWALA GEMS VS. TO BE APPRECIATED THAT IN ORDER TO ACHIEVE THE REPORTED MUST BE SOME CORRESPONDING PURCHASES, WHETHER EFFECTED FROM THE ALLEGED ENTRY PROVIDERS OR FROM THE GREY MARKET WITHOUT BILLS. TH US, THERE OUGHT TO OE SOME PURCHASES MADE AND HENCE, ENTIRE DISALLOWANCE IS NOT JUSTIFIED. IN THIS REGARD* THE RATIO LAID DOWN BY THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF C/T V. NIKUNJ EXIMP ENTERPRISES (P.) LTD., IS QUITE RELEVANT WHEREIN HON'BLE HIGH COURT HAS HELD THAT - 'WHEN THE ASSESSEE HAVE FILED LETTER OF CONFIRMATIO NS OF THE SUPPLIERS, SUNK STATEMENTS HIGHLIGHTING THE PAYMENT ENTRIES THROUGH ACCOUNT PAYEE CHEQUE, COPIES OF INVOICES, S TOCK RECONCILIATION STATEMENTS BEFORE THE AO; AND MERELY BECAUSE THE SUPPLIERS DID NOT APPEAR BEFORE THE AO, ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THE AO CANNOT DISALLOW THE PURCHASES ON THE BASIS OF SUSPICION BE CAUSE THE SUPPLIERS WERE NOT PRODUCED BEFORE THEM.' 5.2.2 IN VIEW OF THE DISCUSSION AS ABOVE, IT IS CLEAR THAT MATERIALS PURCHASED AND SOLD BY THE APPELLANT CANNOT BE DOUBT ED THOUGH IT IS NOT POSSIBLE FOR THE ASSESSEE TO ESTABLISH ONE TO ONE N EXUS/LINK BETWEEN PURCHASES AND SALES. HOWEVER, THE FACT OF THE MATTE R REMAINS THAT THESE TRANSACTIONS ARE NOT VERIFIABLE FROM THE PARTY IN Q UESTION AS IT COULD NOT BE ESTABLISHED THAT PURCHASES HAD BEEN EFFECTED FROM T HE PARTY IN QUESTION. THUS THE PURCHASE PRICES SHOWN ON THE INVOICES PROD UCED COULD NOT BE SUBJECTED TO VERIFICATION AND AS SUCH IT WAS DIFFIC ULT TO ESTABLISH THE CORRECTNESS OF THE PURCHASE PRICES PAID FOR THE MAT ERIALS PURCHASED. IN THE ABSENCE OF ANY SUCH VERIFICATION AS TO THE CORR ECTNESS OF THE PRICE PAID FOR THE MATERIALS PURCHASED BY THE APPELLANT, THE PURCHASE PRICE PAID AS MENTIONED ON THE INVOICES/BILLS CANNOT BE ACCEPT ED AS THE CORRECT PRICE PAID FOR THE GOODS PURCHASED FROM SUCH PARTIE S. IN VIEW OF THE SAME, THE POSSIBILITY OF OVER-INVOICING OF THE MATE RIALS PURCHASED TO REDUCE THE PROFIT CANNOT BE RULED OUT THEREFORE, TH E GROSS PROFIT RATE SHOWN BY THE APPELLANT FOR THE YEAR UNDER CONSIDERA TION CANNOT BE RELIED UPON. IN THE CIRCUMSTANCES, THE CORRECT APPROACH IN SUCH TRANSACTIONS WOULD BE TO ESTIMATE THE' ADDITIONAL BENEFIT OR PRO FIT EARNED ON THESE PURCHASES AND NOT TO DISALLOW THE ENTIRE PURCHASES FROM THE AFORESAID PARTY. IN MY VIEW EITHER THE PURCHASES FROM SUCH PA RTIES OVER INVOICED OR ITA NO.7456/MUM/2018 MENORA ASSOCIATES 4 THE PURCHASES WERE ACTUALLY MADE BUT NOT FROM THE P ARTY FROM WHICH IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHASED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENT ATION. 5.2.3 IN MANY JUDICIAL PRONOUNCEMENTS ON THE ISS UE, THE COURTS HAVE TAKEN A CONSISTENT VIEW THAT IN CASE OF NON-EXISTEN T PARTIES FROM WHICH THE PURCHASES ARE SHOWN TO HAVE BEEN MADE, ONLY A P ART OF SUCH PURCHASES CAN BE DISALLOWED, PARTICULARLY IN SUCH C ASES WHERE THE CORRESPONDING SALES ARE NOT DOUBTED. ALTERNATIVELY THE PROFIT EMBEDDED IN SUCH SALES AGAINST THE ALLEGED BOGUS PURCHASES SHOU LD BE BROUGHT TO TAX. 5.2,4 IN THE CASE OF CIT-1 VS SIMIT P. SHET, ITA NO . 553 OF 2012, ORDER DATED 16/01/2013, WHILE DECIDING A SIMILAR ISSUE, T HE HOA'BLE HIGH COURT OF GUJARAT: HAS HELD THAT; 'WE ARE BROADLY IN AGREEMENT WITH THE REASONING ADO PTED BY THE COMMISSIONER (APPEALS) 'WITH RESPECT TO THE NATURE OF DISPUTED PURCHASES OF STEEL. IT MAY BE THAT THE THREE SUPPLI ERS FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE STEEL DI D NOT OWN UP TO SUCH SALES. HOWEVER, VIM/ QUESTION WHILE CONSIDE RING WHETHER THE ENTIRE AMOUNT OF PURCHASES SHOULD BE ADDED BACK TO THE INCOME OF THE ASSESSEE OR ONLY THE PROFIT ELEMENT E MBEDDED THEREIN WAS TO ASCERTAIN WHETHER THE. PURCHASES THE MSELVES WERE COMPLETELY BOGUS AND NON EXISTENT OR THAT THE PURCH ASES WERE ACTUALLY MAD? BUT NOT FROM THE PARTIES FROM WHOM IT WAS CLAIMED TO HAVE BEEN MADE AND INSTEAD MAY HAVE BEEN PURCHAS ED FROM GREY MARKET WITHOUT PROPER BILLING OR DOCUMENT. IN THE PRESENT CASE, CIT BELIEVED THAT WHEN AS A TRADER IN STEEL T HE ASSESSEE SOLD CERTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCH ASED IHE QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS A CCEPTED BY THE OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASI S OF THE PURCHASES. IN ESSENCE THEREFORE, THE COMMISSIONER ( APPEALS) BELIEVED ASSESSEES THEORY THAT THE PURCHASES WERE N OT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTION ED IN THE BOOKS OF ACCOUNTS. THAT FEEING THE POSITION, NOT TH E ENTIRE PURCHASE PRICE BUT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSE S. SO MUCH IS CLEAR BY DECISION OF THIS COURT, IN PARTICULAR, COURT HAS ALSO TAKEN A SIMILAR VIEW IN CASE OF COMMISSIONER OF INC OME TAX-IV VS. VIJAY M MISTRY CONSTRUCTION LTD VIDE ORDER DARED 20 .01.2011 PASSED IN TAX APPEAL NO. 1090 OF 2009 AND IN CASE O F COMMISSIONER OF INCOME TAX-I VS. BHOLANATH POLY FAB PVT. LTD. VIDE ORDER DATED 23.10.2012 PASSED IN TAX APPEAL NO . 63 OF 2012. THE VIEW TAKEN BY THE TRIBUNAL IN CASE OF VIJAY PRO TEINS PVT. LTD. VS. CIT REPORTED IN 58 ITD 428 CAME TO BE APPROVED. ' 5,2.5 SIMILARLY, WHILE DEALING WITH AN IDENTICAL ISSUE, IN THE CASE OF CIT, VS. BHOLANATH POLY FAB (P) LTD., I.T.A. NO. 63 OF 2 012, IN THE ORDER DATED 23/10/2012. THE HON'BLE HIGH COURT OF GUJARAT HAS H ELD AS UNDER:- 'WE ARE OF THE OPINION THAT THE TRIBUNAL COMMITTED NO ERROR. WHETHER THE PURCHASES THEMSELVES WERE BOGUS OR WHET HER THE ITA NO.7456/MUM/2018 MENORA ASSOCIATES 5 PARTIES FROM WHOM SUCH PURCHASES WERE ALLEGEDLY MAD E WERE BOGUS IS ESSENTIALLY A QUESTION OF FACT. THE TRIBUN AL HAVING EXAMINED THE EVIDENCE ON RECORD CAME TO THE CONCLUS ION THAT THE ASSESSES DID PURCHASE THE DOTH AND SELL THE FINISHE D GOODS. IN THAT VIEW OF THE MATTER, AS NATURAL COROLLARY, NOT THE E NTIRE AMOUNT COVERED UNDER SUCH PURCHASE. BUT THE PROFIT ELEMENT EMBEDDED THEREIN WOULD BE SUBJECT TO TAX. THIS WAS THE VIEW OF THIS COURT IN THE CASE OF SANJAY OILCAKE INDUSTRIES V. CJT [2009] 316 FTR 274 (GUJ). SUCH DECISION IS ALSO FOLLOWED BY THIS COURT IN A JUDGMENT DATED AUGUST 16,2011, IN TAX APPEAL NO.679 OF 2010 IN THE CASE OF CIT V, KISHORAMMTLAT PNTEL IN THE RESULT, TAX AP PEAL IS DISMISSED.' (EMPHASIS SUPPLIED) 5.2.6 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDICIAL PRONOUNCEMENTS CITED ABOVE, WHAT CAN BE DISALLOWED OR TAXED IN THE INSTANT CASE IS THE EXCESS PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES SHOWN TO HAVE BEEN MADE FROM AFORESAID PARTY. AS NA RRATED EARLIER, THE AO IN THIS CASE HAS HELD THAT THE PARTY FROM WHOM T HE PURCHASES WERE MADE BY THE APPELLANT WAS FOUND TO B BOGUS, ESTIMAT IONS RANGING FROM 12.5% TO 25% HAVE BEEN UPHELD BY THE HONBLE GUJARA T HIGH COURT, DEPENDING UPON THE NATURE OF THE BUSINESS, 5.2.6.1 IN A NUMBER/SERIES OF RECENT CASES, INVO LVING THE ISSUE OF BOGUS PURCHASES CARRIED OUT IN A ORGANIZED MANNER THROUGH SOME HAWALA OPERATORS AND THE MODUS OPERANDI UNEARTHED BY THE M AHARASHTRA SALES TAX DEPARTMENT, THE HON'BLE MUMBAI TRIBUNAL HAS EST IMATED THE G.P. ADDITION IN THE HANDS