M/S DESIGNER WATHCHES PVT LTD., MUMBAI V. ITO 14 (1)93), MUMBAI

ITA 7800/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3725 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY J SETHI
• Assessee Lawyers: VINOD MEHTA
• Keywords: Capital asset converted into stock in trade; Accommodation entries
• Section: 133(6); 143(1); 22; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) SMC BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10 ) M/S. DESIGNER WATCHES PVT. LTD., F1/8 PINNACLE BUSINESS PARK FI R ST FLOOR, MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI - 400093 PAN: AAACD4460G V. INCOME TAX OFFICER - 14(1 )(3 ) AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VINOD MEHTA DEPARTMENT BY : SHRI SANJAY J. SETHI DATE OF HEARING : 21 .09 .2021 DATE OF PRONOUNCEMENT : 01 .10 .2021 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 22 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 25.08.2019 FOR THE A.Y. 2009 - 10 IN SUSTAINING THE ADDITION @12 % OF THE ALLEGED NON - GENUINE PURCHASES MADE BY THE ASSESSING OFFICER. 2 ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10) M/S. DESIGNER WATCHES PVT. LTD., 2. BRIEFLY STATED THE FACTS ARE THAT, ASSESSEE AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURER AND DEALER IN WATCHES, FILED RETURN OF INCOME ON 30.09.2009 DECLARING INCOME OF . 8,87,250 / - FOR THE A.Y. 2009 - 10 AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FRO M THOSE DEALERS. THE ASSESSMENT WAS REOPENED U/S. 147 OF THE ACT BASED ON THE INFORMATION R ECEIVED FROM INVESTIGATION WING OF THE INCOME TAX DEPARTMENT, MUMBAI, THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES FROM VARIOUS DEALERS WHO ARE SAID TO BE PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOODS. IN THE REASS ESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINE NESS OF THE PURCHASES MADE FROM VARIOUS DEALERS AS REFERRED IN ASSESSMENT ORDER. IN RESPONSE A SSESSEE VIDE LETTER DATED 14.03.2015 FURNISHED COPIES OF LEDGER ACCOUNTS OF THE SAID PARTIES IN THE BOOK OF ACCOUNT WITH SUPPORTING BILLS, COPY OF BANK ACCOUNT STATEMENT AND QUANTITATIVE DETAILS OF TRADED GOODS AND SUBMITTED THAT T HE PURCHASES MADE ARE GENUINE. 3 ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10) M/S. DESIGNER WATCHES PVT. LTD., 3. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESS EE MIGHT HAVE MADE PURCHASES IN THE GRAY MARKET. ASSESSING OFFICER OBSERVED THAT THE NOTICES ISSUED U/S. 133(6) OF THE ACT TO THE PARTIES ARE RETURNED UNSERVED WITH A REMARK NON KNOWN/LEFT AND THE ASSESSEE HAS NOT PRODUCED THE PARTIES BEFORE THE ASSESSI NG OFFICE R. IT IS THE FINDING OF THE ASSESSING OFFICER THAT ASSESSEE MADE SHAM AND NON - GENUINE PURCHASES TRANSACTION WHICH WAS ACCOUNTED IN THE BOOKS OF ACCOUNT BY THE ASSESSEE . THEREFORE, ASSESSING OFFICER TREATED . 22,59,005 / - AS NON - GENUINE , BEING 12 % OF THE TOTAL NON GENUINE PURCHASES OF . 1,88,25,048 / - FOR THE A.Y. 2009 - 10 . ON APPEAL THE LD.CIT(A) SUSTAINED THE ACTION OF THE ASSESSING OFFICER. AGAINST THIS ORDER OF THE LD.CIT(A) ASSESSEE IS IN APPEAL. 4. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A). LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ADDITION MADE BY THE LD.CIT(A) IS ON HIGHER SIDE, THUS REQUESTED TO REDUCE THE SAME. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE WRITTEN SUBMISSIONS STATED T HAT THE GROSS PROFIT TO SALES RATIO OF THE ASSESSEE IS AROUND 9% AND THIS IS ALSO THE INDUSTRIAL STANDARD IN WHICH THE ASSESSEE 4 ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10) M/S. DESIGNER WATCHES PVT. LTD., OPERATES. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE GROSS PROFIT RATIO OF THE LAST THREE PRECEDING ASSESSMENT YEARS UNDER A PPEAL ARRIVED BY TAKING THE FIGURES FROM THE AUDITED FINANCIAL STATEMENTS ARE AS UNDER: - PARTICULARS AY 2008 - 09 AY 2007 - 08 AY 2006 - 07 SALES 6,86,58,909/ - 6,99,66,438/ - 6,14,27,895/ - COST OF SALES 6,20,88,452 / - 6,33,01,547/ - 5,62,05,964/ - GROSS PROFIT (G. P.) 65,70,457/ - 66,64,891/ - 52,21,930 / - GP TO SALES RATIO 9.56% 9.52% 8.50% THEREFORE, IT IS SUBMITTED THAT ESTIMATION ON ADDITION, IF AT ALL, MAY BE MADE AT 9% RATHER THAN 12% MADE BY THE LD.CIT(A). RELIANCE WAS PLACED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF ACIT V. M/S. K.P. SANGHVI & SONS LLP IN THE CASE OF ITA .NO. 2455/MUM/2017 DATED 28.09.2018 . 5. LD.DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HEARD BOTH SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT SALES HAVE BEEN ACCEPTED AS GENUINE FROM OUT OF THESE PURCHASES. WHEN THE SALES HAVE BEEN ACCEPTED AS GENUINE THE ENTIRE PURCHASES CANNOT BE TREATED AS NON - GENUINE. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANAT H POLYFAB PVT. LTD [355 ITR 290] HELD THAT WHEN THE ASSESSEE MADE PURCHASES AND SOLD THE FINISHED GOODS AS A 5 ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10) M/S. DESIGNER WATCHES PVT. LTD., NATURAL COROLLARY NOT THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASES WOULD BE SUBJECT TO TAX BUT ONLY THE PROFIT ELEMENT EMBEDDED THEREIN. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. SIMIT P. SETH [38 TAXMAN.COM 385]. SIMPLY BECAUSE THE PARTIES WERE NOT PRODUCED THE ENTIRE PURCHASES CANNOT BE ADDED AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF CIT V. NIKU NJ EXIMP [216 TAXMAN.COM 171]. 7. I AGREE WITH THE VIEW OF THE LOWER AUTHORITIES THAT THERE SHOULD BE AN ESTIMATION OF PROFIT ELEMENT FROM THESE PURCHASES AND SHOULD BE ESTIMATED REASONABLY AS THE ASSESSEE COULD NOT CONCLUSIVELY PROVE THAT THE PURCHASES MADE AR E FROM THE PARTIES AS CLAIMED, ESPECIALLY IN THE ABSENCE OF ANY CONFIRMATIONS FROM THEM. AS COULD BE SEEN FROM THE AVERAGE GROSS PROFIT RATIO TO SALES OF THE ASSESSEE FOR THE LAST THREE PRECEDING ASSESSMENT YEARS I.E. A.Y. 2006 - 07 TO A.Y. 2008 - 09 IT IS AR RIVED AT 9.19% AND THE GROSS PROFIT MARGIN OF THE ASSESSEE FOR THE CURRENT ASSESSMENT YEAR I.E. A.Y. 2009 - 10 IS 9.17%. THEREFORE, TAKING THE TOTALITY OF FACTS AND CIRCUMSTANCES, KEEPING IN VIEW THE NATURE OF BUSINESS OF THE ASSESSEE I.E. TRADER IN MANUFAC TURER AND DEALER IN WATCHES , AND THE GROSS PROFIT RATIO TO SALES FOR THE LAST THREE PRECEDING ASSESSMENT YEARS AND ALSO CURRENT ASSESSMENT YEAR IT WOULD BE JUSTIFIED IF THE PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES ARE ESTIMATED AT 9 .5 % . ACCORDINGLY, 6 ITA NO. 7800/MUM/2019 (A.Y: 2009 - 10) M/S. DESIGNER WATCHES PVT. LTD., I DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT FRO M THE NON - GENUINE PURCHASES AT 9 .5 % FOR ASSESSMENT YEAR UNDER CONSIDERATION AND RESTRICT THE DISALLOWANCE OF PURC HASES TO 9 .5 % AND COMPUTE THE INCOME ACCORDINGLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 01 .10.2021 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. SD/ - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 01 .10 .2021 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM