Shri Hitendrakumar Gandala Patel, Mehsana V. The ITO, Ward-1, Mehsana

ITA 911/AHD/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6525 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Keywords: Bogus purchase; Question of law; Tax effect
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 911/AHD/2018 / ASSTT. YEAR: 2008-2009 SHRI HITENDRAKUMAR G. PATEL, TRIJO BHAG, VILLAGE BALOL, AT & POST BALOL, TALUKA & DISTRICT, MEHSANA-384410. PAN: ABHPP6736G VS. I.T.O, WARD-1, MEHSANA. (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI VARTIK CHOKSHI, A.R REVENUE BY : SHRI R.R. MAKWANA, SR.D.R /DATE OF HEARING : 26/08/2021 /DATE OF PRONOUNCEMENT: 01/09/2021 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), GANDHI NAGAR, DATED 08/01/2018 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEAR 2008-2009. ITA NO.911/AHD/2018 ASSTT. YEAR 2008-09 2 2. AT THE OUTSET, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT HE HAS BEEN INSTRUCTED NOT TO PRESS GROUND NO. 1 AND 2 WHEREIN THE VALIDITY OF THE ASSESSMENT FRAMED U/S 147 OF THE ACT, WAS CHALLENGED BY THE ASSESSEE. ACCORDINGLY, WE DISMISS THE SAME AS NOT PRESSED. 3. THE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 TO 5 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 59,55,704/- BEING 12.5% OF BOGUS PURCHASES OF RS. 3,96,45,639/- ONLY. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING IN ROUGH AND POLISHED DIAMONDS UNDER THE NAME AND STYLE OF M/S MONA IMPEX. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND THAT THE ASSESSEE HAS MADE PURCHASES FROM GRAY MARKET WITHOUT THE BILLS WHICH IS BOGUS IN NATURE. THE ASSESSEE TO ACCOUNT FOR SUCH BOGUS PURCHASES FROM THE GREY MARKET HAS SHOWN PURCHASES ON PAPER FROM M/S MOHIT INTERNATIONAL, MUMBAI AMOUNTING TO RS. 3,96,45,639/- ONLY WHICH WERE RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSEE AGAINST SUCH PURCHASES (ON PAPER) HAS ALSO SHOWN SALES IN ITS FINANCIAL STATEMENTS. 4.1 THE AO, IN VIEW OF THE ABOVE, HELD THAT THE ASSESSEE HAS SHOWN BOGUS PURCHASES IN ITS BOOKS OF ACCOUNT FOR RS. 3,96,45,639/- TO ADJUST THE PURCHASE MADE FROM THE GRAY MARKET. ACCORDINGLY, THE AO WAS OF THE OPINION THAT THE ELEMENT OF PROFIT EMBEDDED IN SUCH PURCHASES SHOULD BE BROUGHT TO TAX. FOR THIS PURPOSE THE AO ESTIMATED PROFIT AT THE RATE OF 12.5 PERCENT OF SUCH PURCHASES AFTER RELYING ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT P. SHETH REPORTED IN 38 TAXMAN.COM 385 (GUJARAT). THUS THE AMOUNT OF RS. 49,55,704/- (12.5 PERCENT OF RS.3,96,45,639/-) WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A), WHO ALSO CONFIRMED THE SAME. ITA NO.911/AHD/2018 ASSTT. YEAR 2008-09 3 6. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IN APPEAL BEFORE US. 7. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 69 AND CONTENDED THAT THE LD. CIT(A) IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2007- 08 HAS CONFIRMED THE ADDITION AT 6% OF THE BOGUS PURCHASE. ACCORDINGLY, THE LD. AR REQUESTED TO REDUCE THE AMOUNT OF ESTIMATED PROFIT TO 6% OF THE BOGUS PURCHASE. 8. ON THE OTHER HAND LD. DR CONTENDED THAT THE APPEAL WAS NOT PREFERED BY THE REVENUE AGAINST THE FINDINGS OF LD. CIT(A) FOR THE ASSESSMENT YEAR 2007-08 DUE TO LOW TAX EFFECT. THEREFORE, NO REFERENCE CAN BE MADE TO THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2007-08. THE LD. DR, VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE CONTROVERSY IN THE CASE ON HAND IS LIMITED TO THE EXTENT OF THE RATE OF PROFIT TO BE APPLIED ON THE BOGUS PURCHASES. IN THE CASE ON HAND THE ELEMENT OF PROFIT HAS BEEN ESTIMATED @ 12.5% BY THE REVENUE AFTER MAKING REFERENCE TO THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH AS DISCUSSED ABOVE. 9.1 ADMITTEDLY, IN THE GIVEN FACT OF THE CASE, THE ASSESSEE WAS FOUND TO BE ENGAGED IN MAKING PURCHASE FROM THE GRAY MARKET AS WELL AS FROM THE BOGUS PARTIES. THE PURCHASES WERE MADE FROM THE BOGUS PARTIES TO ACCOUNT FOR THE PURCHASES MADE FROM THE GRAY MARKET. THEREFORE, IN SUCH FACTS AND CIRCUMSTANCES THE PROFIT WAS ESTIMATED BY THE HONBLE GUJARAT HIGH COURT AT THE RATE OF 12.5% ON SUCH BOGUS PURCHASES IN THE CASE AS DISCUSSED ABOVE I.E. SIMIT P. SHETH. 9.2 THE QUESTION ARISES WHETHER THE PRINCIPLE LAID SHOW BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P. SHETH CAN BE APPLIED IN THE GIVEN FACTS AND ITA NO.911/AHD/2018 ASSTT. YEAR 2008-09 4 CIRCUMSTANCES. IN THIS CONNECTION WE REFER THE RELEVANT FINDINGS OF THE HONBLE GUJARAT HIGH COURT WHICH IS REPRODUCED AS UNDER: IN ESSENCE, THE TRIBUNAL ONLY ESTIMATED THE POSSIBLE PROFIT OUT OF PURCHASES MADE THROUGH NON-GENUINE PARTIES. NO QUESTION OF LAW IN SUCH ESTIMATION WOULD ARISE. THE ESTIMATION OF RATE OF PROFIT RETURN MUST NECESSARILY VARY WITH THE NATURE OF BUSINESS AND NO UNIFORM YARDSTICK CAN BE ADOPTED. 9.3 FROM THE ABOVE FINDINGS, WE NOTE THAT THE HONBLE GUJARAT HIGH COURT HAS OBSERVED THAT THE ESTIMATION OF RATE OF PROFIT HAS TO BE IN LINE OF THE NATURE OF ACTIVITY CARRIED ON BY THE ASSESSEE AND THEREFORE THERE CANNOT BE ANY UNIFORM YARDSTICK WHICH CAN BE ADOPTED IN WORKING OUT THE PROFIT EMBEDDED IN BOGUS PURCHASES 9.4 UNDOUBTEDLY, THE ASSESSEE IN THE ABOVE CASE OF HONBLE GUJARAT HIGH COURT I.E. SIMIT P. SHETH. WAS ENGAGED IN THE BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS. THE RELEVANT OBSERVATION OF HONBLE GUJARAT HIGH COURT IS REPRODUCED AS UNDER: 2. BRIEFLY STATED FACTS ARE : 2.1 THAT THE RESPONDENT-ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS. 9.5 ADMITTEDLY, IN THE CASE ON HAND, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN ROUGH AND POLISHED DIAMONDS. THUS IT IS CLEAR THAT THE RATE ADOPTED BY THE HONBLE GUJARAT HIGH COURT IN THE PRESENT CASE OF THE ASSESSEE CANNOT BE ADOPTED FOR THE REASON THAT THE NATURE OF BUSINESS ACTIVITY IS DIFFERENT. 9.6 MOVING FURTHER WE NOTE THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT. LTD. V/S ITO IN APPEAL NO. 200 OF 2003 DATED 07/11/2014 HAS ADOPTED THE RATE OF 5% OF THE BOGUS PURCHASE. THEREFORE, WE ARE INCLINED TO ADOPT THE SAME RATE IN THE CASE OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE IS ALSO ENGAGED IN THE TRADING OF DIAMONDS. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED AS UNDER: 5. WE HAVE HEARD LEARNED ADVOCATES FOR BOTH THE SIDES AND PERUSED THE ORDERS PASSED BY THE CIT AS WELL AS THE TRIBUNAL. AS A RESULT OF HEARING AND PERUSAL OF RECORDS, IT IS BORNE OUT THAT THE AVERAGE PROFIT WHICH HAS BEEN CONSIDERED FOR THIS INDUSTRY IS AROUND 3 TO 7%. THE TRIBUNAL IN THE INSTANT CASE HAS DIRECTED ADDITION AT THE RATE OF 12.5% WHICH IN OUR OPINION IS ON THE HIGHER SIDE. LEARNED ADVOCATE FOR THE APPELLANT HAS FAIRLY CONCEDED THAT EXCESS 7% ITA NO.911/AHD/2018 ASSTT. YEAR 2008-09 5 IS ON HIGHER SIDE AND THAT AT THE MOST 3% MAY BE APPLIED. IN THAT VIEW OF THE MATTER, GOING BY THE PECULIAR FACTS OF THE PRESENT CASE WE ARE OF THE VIEW THAT ENDS OF JUSTICE WILL BE MET BY TAKING MEAN OF MAXIMUM AND MINIMUM OF THE PROFIT RATE WHICH COMES TO 5%. THEREFORE, WE THINK IT FIT TO DIRECT THE ASSESSING OFFICER TO APPLY 5% G.P. RATE AS THE RATE OF 12.5 % IS DRASTICALLY HIGHER AND 1.03% IS DRASTICALLY LOWER. GROSS PROFIT RATE OF 5% IS THE AVERAGE RATE OF THE INDUSTRY AND WE THINK IT FIT TO MAKE ADDITION ON ACCOUNT OF 5% GROSS PROFIT RATE. THE ADDITION BE MADE ACCORDINGLY. WE THEREFORE ANSWER THE QUESTION RAISED IN THE NEGATIVE I.E. AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 9.7 ADMITTEDLY, IN THE ABOVE CASE OF HONBLE GUJARAT HIGH COURT, THE ASSESSEE WAS ALSO ENGAGED IN THE ACTIVITY OF POLISHED DIAMONDS. ACCORDINGLY, IN VIEW OF THE ABOVE, WE DIRECT THE REVENUE TO ADOPT THE RATE OF 5% OF THE BOGUS PURCHASES TO WORK OUT THE ESTIMATED PROFIT EMBEDDED THEREIN. HENCE THE GROUNDS OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 01/09/2021 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (TRUE COPY) AHMEDABAD; DATED 01/09/2021 MANISH