ITO 26(2)(4), MUMBAI V. SHRI. PANKAJ KAPURCHAND SANGHAVI, MUMBAI

ITA 972/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5734 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOURABH DESHPANDE
• Keywords: Bogus purchase; Accommodation entries
• Section: 40A(3); 133(6); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH M UMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEM BER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.972/MUM/2019 ( ASSESSMENT YEAR: 2009-10 ) ITO-26(2)(4) ROOM NO.511, 5 TH FLOOR C-11, BKC COMPLEX BANDRA(EAST) MUMBAI-400 051 VS. PANKAJ KAPURCHAND SANGHVI ROOM NO.18, 44 NAGDEVI STREET MANDAVI,MUMBAI-400 003 PAN/GIR NO. A IJPS7241Q ( APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI SOURABH DESHPANDE, ADDL. CIT- DR ASSESSEE BY NONE DATE OF HEARING 06/02 /2020 DATE OF PRONOUNCEME NT 14 / 0 2 /20 20 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)58, MUMBAI, DATED 30/11/2018 AND IT PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ' WHETHER ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW, THE LD, CIT[A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO 8.5% OF THE TOTAL AMOUNT OF BOGUS PURCHASE TRANSACTION INST EAD OF 16.41% OF THE TOTAL AMOUNT OF BOGUS PURCHASE MADE BY THE AO,' 2. WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD. C1T[A) HAS ERRED-IN NOT CONSIDERING TH AT THE ADDITION WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM DIT[ INV,) AND SALES TAX DEPARTMENT, MAHARASHTRA WITH REGARD TO BOGUS PURCHA SE MADE BY THE ASSESSEE FROM DEALERS WITHOUT SUPPLY OF ACTUAL GOOD S,' ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 2 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD.CIT(A} HAS ERRED IN NOT CONSIDERING THA T THE HAWALA OPERATORS HAVE ADMITTED ON OATH BEFORE THE SALES TAX AUTHORIT IES THAT THEY HAVE NOT SOLD ANY MATERIAL TO ANYBODY,' 4. WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING TH AT THE ASSESSEE COULD NOT PROVE THE GENUINENESS AND CREDITWORTHINESS OF T HE PURCHASE TRANSACTIONS DURING THE COURSE OF ASSESSMENT PROCEE DINGS.' 5. 'THE LD. CTT(A) FAILED TO UPHOLD THE DECI SION OF HON'BLE APES COURT IN THE CASE OF N K PROTEINS LTD. VS. DCIT IN SLP(CIVIL) NO.760/2017 DATED 16.01.2017 WHERE 100% OF ADDITION WAS CONFIRM ED BY THE APEX COURT.' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT APPLICABILITY OF PROVISIONS OF SECTION 40A(3) ATTRACTS 100% BOGUS PURCHASES TO BE HELD AS PROFIT' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF RESELLER IN HARDWARE ITEMS, FILED HIS RETURN OF INCOME FOR AY 2009-10 ON 29/09/2009, DECLARING THE TOTAL I NCOME AT RS. 4,89,920/- AND SAID RETURN WAS PROCESSED U/S 143(1) OF THE I.T.ACT, 1961. THE CASE HAS BEEN SUBSEQUENTLY REOPENED U/S 1 47 OF THE ACT, ON THE BASIS OF INFORMATION RECEIVED FROM DGIT, INV ESTIGATION, MUMBAI, AS PER WHICH, SALES TAX AUTHORITIES OF GOVE RNMENT OF MAHARASHTRA HAD TAKEN ACTIONS AGAINST NUMBER OF HA WALA DEALERS, WHO HAD ISSUED BOGUS PURCHASE BILLS TO VARIOUS PART IES IN MUMBAI AND OTHER PLACES. AS PER LIST OF BENEFICIARIES, THE ASSESSEE IS ONE OF THE BENEFICIARY, 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. 35,18,465/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN C OMPLETED U/S. 143(3).R.W.S. 147 OF THE I.T.ACT, 1961 ON 23/03/201 5 AND DETERMINED TOTAL INCOME OF RS. 10,67,300/-, AFTER MAKING ADDIT IONS OF 16.41% GROSS PROFIT TOWARDS ALLEGED BOGUS PURCHASE FROM TH OSE PARTIES AND MADE ADDITIONS OF RS. 5,77,380/-. ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 3 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESEE P REFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSE HAS REITRATED HIS SUBMISSIONS MADE BEFORE THE AO. THE S UM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE L D.CIT(A) ARE THAT PURCHASE FROM THE ABOVE PARTY IS GENUINE, WHIC H IS SUPPORTED BY NECESSARY EVIDENCES. THEREFORE, NO ADDITIONS COU LD BE MADE ON THE BASIS OF INFORMATION RECEIVED FROM THIRD PARTY. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESS EE AND ALSO, BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COUR T, IN THE CASE OF CIT VS. SIMITH P. SHETH (356 ITR 451) SCALED DOWN A DDITION MADE BY THE AO TOWARDS ALLEGED BOGUS PURCHASES TO 8.50% GROSS PROFIT ON TOTAL PURCHASES FROM THOSE PARTIES. THE RELEVANT FI NDINGS OF THE LD.CIT(A) ARE AS UNDER:- 10. ORDINARILY ONCE PURCHASE IS HELD BOGUS, ENTIRE PURCHASE IS TO BE DISALLOWED AS A BOOK ENTRY HAVING EFFECT OF REDUCIN G PROFIT IS CREATED SOLELY FOR REDUCING NORMAL PROFIT. HOWEVER JUDICIAL DECISIONS NEED TO BE FOLLOWED BY WHICH A FIXED PER CENT OF SAME I.E BOGU S ENTRY/ACCOMMODATION ENTRY IS ADDED TO INCOME EG: D CIT, 14(1}(2), MUMBAI VS M/S FAGIOLI INDIA PVT LTD, (ITA NO. 4557 & 45G8/MUM/2Q1 5 DATED 28.07.2017, WHICH INFER ALIA CONSIDERED DECIS ION OF HON. SUPREME COURT IN N K PROTIENS VS DCLT (SLP 759 TO 2017) DAT ED 16.01,2017]. IN THE CITED CASE OF M/S FAGIOLI INDIA PVT. LTD GROSS PROFIT WAS 37% AND HONBLE ITAT DECIDED THAT ESTIMATE OF PROFIT BE 12. 5% ON THE FIGURE OF ACCOMMODATION ENTRY OR BOGUS PURCHASE. FURTHER IN S HRI MEHUL K. MEHTA PROP. VAISHNAVI ENTERPRISES VS INCOME TAX OFFICER 1 5(1)(3) MUMBAI IN I,T,A. MO. 3 227/MUM/2Q16 DATED 14.03.2017 IN THE C ONTEXT OF THE CASE THE HON ITAT ORDERED AS UNDER: WE DO NOT FIND ANY INFIRMITY IN THE WELL REASONED A PPELLATE ORDER OF LEARNED CIT(A) WHICH WE ARE INCLINED TO AFFIRM/SUST AIN EXCEPT THAT , IN OUR CONSIDERED VIEW, THE END OF JUSTICE WILL BE MET IN THE INSTANT CASE IF GP IS ESTIMATED TO TUNE OF 12 5% OF THE PU RCHASES FROM THESE ALLEGED HAWALA OPERATORS WHICH WILL COVER ANY LEAKAGE OF REVENUE BY WAY OF VAT, COMMISSION ETC. . THUS AS CO MPARED TO THE GP RATIO AT 7.11% DICTATED BY THE ASSESSED, WE ARE ESTIMATING GP RATIO AT THE RATE OF 12.5% ON THE SAID BOGUS PUR CHASES WHEREIN THE ASSESSES WILL BE ALLOWED CREDIT OF DECLARED GP RATE OF 7.11% AND NET ADDITION TO GP RATIO SHALL BE TO THE TUNE O F 5.39% ON BOGUS ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 4 PURCHASES, HENCE , WE ALLOW PARTIAL RELIEF TO THE A SSESSES. WE ORDER ACCORDINGLY IT CAN BE SEEN THAT IN THE ABOVE THE HON.LTAT HAS R EDUCED ADDITION FURTHER VIS-A-VIS THE ORIGINALLY ACCEPTED FIGURE OF 12.5%,FURTHER IN CASE OF M/S GEOLIFE ORGANICS VS ACIT ITA NOS 3699,4276,491, 4760/MUM/2016 OF HON. ITAT, MUMBAI DATED 05.05.2017, DESPITE ALL DEFICIENCIES IN ASSESSMENT PROCEDURE, AS AGAINST 12.5% DISALLOWANCE MADE BY ASSESSING OFFICER, THE HON. ITAT FIXED THE RATE OF DISALLOWANCE AT A LOWER LEVEL. 11. ALL SUBMISSIONS OF THE APPELLANT IS DULY CONSID ERED. THE GROSS PROFIT RATE OF IS 10.1% (CURRENT A.Y.), THE DISPUTED TRANS ACTION IS RESELLING OF HARDWARE ITEMS. THE ASSESSING OFFICER DISALLOWED 16 .41% (3 YEAR AVERAGE) OF THE ALLEGED AMOUNT OF ACCOMMODATION ENT RIES. ON FACTS AND CIRCUMSTANCES OF THE CASE, AND CONSIDERING STRENGTH OF EVIDENCE BROUGHT TO RECORD (I NOTE THAT ASSESSING OFFICER HAS ISSUED NOTICE TO THE ALLEGED ACCOMMODATION ENTRY PROVIDERS WHICH WEAKENS THE CAS E FOR (HE APPELLANT) DECISION IS TO BE TAKEN IN A BALANCED MA NNER. I, AFTER CONSIDERING ALL ASPECTS, HOLD THAT DISALLOWANCE BE KEPT AT 8.5% OF TRANSACTIONS COVERED BY ACCOMMODATION ENTRIES. THE ASSESSING OFFICER IS DIRECTED TO MODIFY ASSESSMENT ACCORDINGLY. 5. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD TH E LD. DR, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE T HROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD. AO HAS MADE ADDITION OF 16.41% PROFIT ON ALLEGED BOGUS PURCHASES ON THE GRO UND THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF BOGUS PURCHASE BILLS ISSUED BY HAWALA DEALERS. ACCO RDING TO THE LD. AO, ALTHOUGH ASSESEE HAS FILED CERTAIN BASIC EVIDEN CES, BUT FAILED TO FILE FURTHER EVIDENCE IN THE BACKDROP OF CLEAR FIND ING BY THE SALES TAX DEPARTMENT, MAHARASHTRA THAT THOSE PARTIES ARE INVO LVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF GO ODS. THE LD. AO HAD ALSO TAKEN SUPPORT FROM THE INVESTIGATION CONDU CTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS PER WHICH NOTI CE ISSUED U/S 133(6) TO THE PARTIES WERE RETURNED UN-SERVED BY TH E POSTAL AUTHORITIES. THEREFORE, HE CAME TO THE CONCLUSION T HAT PURCHASES FROM THE SAID PARTIES ARE BOGUS IN NATURE. IT IS TH E CONTENTIONS OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT PURCHASE S FROM THE ABOVE ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 5 PARTY ARE SUPPORTED BY NECESSARY EVIDENCES. IT HAS FURNISHED ALL POSSIBLE EVIDENCES, INCLUDING BOOKS OF ACCOUNTS; ST OCK DETAILS AND BANK STATEMENT TO PROVE THAT PAYMENT AGAINST SAID P URCHASES HAVE BEEN MADE THROUGH PROPER BANKING CHANNELS. 6 HAVING CONSIDERED ARGUMENTS OF THE LD. DR AND ALS O, MATERIAL AVAILABLE ON RECORD, WE FIND THAT BOTH THE SIDES HA VE FAILED TO PROVE THE CASE IN THEIR FAVOUR WITH NECESSARY EVIDENCES. ALTHOUGH, ASSESSEE HAS FILED CERTAIN BASIC EVIDENCES, BUT FAI LED TO FILE FURTHER EVIDENCES TO CONCLUSIVELY PROVE PURCHASES TO THE SA TISFACTIONS OF THE LD.AO. FURTHER, MERE PAYMENT BY CHEQUE DOES NOT PRO VE THE GENUINENESS OF PURCHASE, MORE PARTICULARLY WHEN OTH ER CIRCUMSTANTIAL EVIDENCE SAYS OTHERWISE. AT THE SAME TIME, THE LD. AO HAD ALSO FAILED TO TAKE THE INVESTIGATION TO A L OGICAL CONCLUSION BY CARRYING OUT NECESSARY ENQUIRES, BUT HE SOLELY RELI ED UPON INFORMATION RECEIVED FROM INVESTIGATION WING, WHICH WAS FURTHER SUPPORTED BY INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT. THE AO NEITHER POINTED OUT ANY DESCREPA NICES IN BOOKS OF ACCOUNTS NOR MADE OUT A CASE OF SALES OUTSIDE BO OKS OF ACCOUNTS. IN FACT, THE AO DID NOT DISPUTED SALES DECLARED FOR THE YEAR. UNDER THESE CIRCUMSTANCES, IT IS DIFFICULT TO ACCEPT ARGU MENTS OF BOTH THE SIDES. FURTHER, IN A CASE WHERE PURCHASES ARE CONSI DERED TO BE PURCHASED FROM SUSPICIOUS/HAWALA DEALERS, VARIOUS H IGH COURTS AND TRIBUNALS HAD CONSIDERED AN IDENTICAL ISSUE IN LIGH T OF INVESTIGATION CARRIED OUT BY THE SALES TAX DEPARTMENT AND HELD TH AT IN CASE OF PURCHASES CLAIMS TO HAVE MADE FROM ALLEGED HAWALA D EALERS, ONLY PROFIT ELEMENT EMBEDDED IN THOSE PURCHASES NEEDS TO BE TAXED, BUT NOT TOTAL PURCHASE FROM THOSE PARTIES. THE HONBLE GUJARAT HIGH COURT, IN THE CASE OF CIT VS SIMITH P.SHETH 356 ITR 451 HAD ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 6 CONSIDERED A SIMILAR ISSUE AND HELD THAT AT THE TIM E OF ESTIMATION OF PROFIT FROM ALLEGED BOGUS PURCHASES NO UNIFORM YARD STICKS COULD BE ADOPTED, BUT IT DEPENDS UPON FACTS OF EACH CASE. TH E ITAT, MUMBAI, IN NUMBER OF CASES HAD CONSIDERED AN IDENTICAL ISSU E AND DEPENDING UPON FACTS OF EACH CASE, DIRECTED THE LD.AO TO ESTI MATE GROSS PROFIT OF 10% TO 15% ON TOTAL ALLEGED BOGUS PURCHASES. IN THIS CASE, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE THE LD. AO HAS MADE 16.41% PROFIT ADDITIONS, WHEREAS THE LD.CIT(A) HAS SCALED DOWN ADDITION TO 8.50% GROSS PROFIT ON TOTAL ALLEGE D BOGUS PURCHASE. ALTHOUGH, BOTH AUTHORITIES HAVE TAKEN DIFFERENT RAT E OF PROFIT FOR ESTIMATION OF INCOME FROM ALLEGED BOGUS PURCHASE, B UT NO ONE COULD SUPPORT SAID RATE OF GROSS PROFIT WITH NECESSARY EV IDENCES OR ANY COMPARABLE CASES. THEREFORE, CONSIDERING FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN NUMBER OF CASES, WE ARE OF THE CONSIDERED OPINIO N THAT THE LD. CIT(A) HAS TAKEN ONE OF THE POSSIBLE VIEW AND ESTIM ATED 8.5% GROSS PROFIT ON ALLEGED BOGUS PURCHASES TO SETTLE DISPUT E BETWEEN THE PARTIES AND HENCE, WE ARE INCLINED TO UPHOLD ORDER OF THE LD. CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 /02/ 2020 SD/- ( SAKTIJIT DEY ) SD/- ( G. MANJUNATHA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 14 /02/2020 THIRUMALESH SR.PS ITA NO.972/MUM/2019 PANKAJ KAPURCHAND SANGHVI 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//