Income Tax Appellate Tribunal - Mumbai
Income Tax Officer 25(2)(1), Mumbai vs A Varshit & Company, Mumbai on 27 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "A", MUMBAI Before Shri MAHAVIR SINGH, Judicial Member, and Shri G. MANJUNATHA, Accountant Member ITA No.990/Mum/2018 Assessment Year: 2008-09 ITO-25(2)(1), A. VArshit & Company, C-10, Room No.505, 5th Floor, 802, Millennium Apartment, Pratyakshkar Bhavan, Bandra बनाम/ Plot No.661, Lallubhai Park Kurla Complex, Bandra, Vs. Road, Ext. Vile Parle (West), Mumbai-400051 Mumbai-400056 (राज व /Revenue) (नधा रती /Assessee) P.A. No.AAKFA6008L राज व क ओर से / Revenue by Shri Vijay Kumar Jaiswal नधा रती क ओर से / Assessee by Shri Bharat Kumar सन ु वाई क तार ख / Date of Hearing : 21/02/2019 27/02/2019 आदे श क तार ख /Date of Order:
आदे श / O R D E R Per G. Manjunatha, (Accountant Member) This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-37, Mumbai, dated 07/12/2017 and it pertains to AY 2008-09. The Revenue has raised following grounds of appeal:-
1. "On the facts and in the circumstances of the case and in law, the Ld. C 11(A) has erred in deleting the addition of Rs.84,19,646/- on account of bogus purchases."
2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the addition was made on the basis of information received from the DGIT(Inv.), Mumbai, with regard to bogus purchases made by the assessee that all the concerns controlled and managed by them are not doing any real trading in diamonds but indulged in paper transactions only."2
ITA No.990/Mum2018 A Varshit & Company
3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that the hawala dealers have admitted before the Investigation wing the modus operandi followed by the above group by the key persons of the group in their statements recorded on oath."
4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred is not considering that the assessee could not prove the genuineness of the parties during the assessment proceedings."
5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in estimating the profit at 3% of the total alleged bogus purchases from hawala dealers."
6. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the decision of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. Vs. DCIT (2017-TIOL-23-SC-IT) dated 16.01.2017 wherein the Hon'ble Apex Court confirmed the decision of the High Court for addition of entire income on account of bogus purchases."
7. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
2. The brief, facts of the case are that the assessee, partnership firm is engaged in the business of diamond trading, filed its return of income for AY 2008-09, on 09/09/2008, declaring total income at Rs. 1,66,390/- and said return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter "the Act"). In this case, information was received from the DGIT(Inv.) that during the search proceedings u/s 132 of the Act, on Rajendra Jain Group, it is known that assessee have taken accommodation entries of bogus purchases of Rs.86,80,048/- from four concerns owned and operated by Rajendra Jain Group and its associates. During the course of search, Rajendra Jain Group had admitted that they were indulged in issuing bogus bills without their being any business activity. Based on the said information, the case has been reopened u/s 147 of the Act and issued notice u/s 148 of the Act. In response to notice u/s 148 of the Act, the assessee filed letter dated 16/04/2015 and submitted that return of income filed on 09/09/2008 for AY 2008-09 may 3 ITA No.990/Mum2018 A Varshit & Company be treated as return filed in response to notice u/s 148 of the Act. Thereafter, notice u/s 143(2) and 142(1) of the Act, along with questionnaire were issued. In response to notice, the Ld. AR of the assessee, filed various details as called for. In order to verify the genuineness of transaction, the AO issued notices u/s 133(6) of the Act to all the parties, for which except one party, none have replied filing details called for by the AO. In respect of three parties, postal authorities returned notice with remark not claimed. During the assessment proceedings, the AO called upon the assessee to explain as to why purchase from the above parties shall not be treated as unexplained expenditure u/s 69C of the Act in view of the specific information received from the DGIT(Inv.) as well as no reply received from the parties in response to notices. In reply, the assessee stated that purchases from above parties are genuine, which are supported by proper evidence. Merely for the reason third party has admitted in its proceedings that purchases are bogus, no adverse inference can be drawn against the assessee when the assessee has filed various details to prove purchases. The AO after considering the submission of the assessee and also taken into account, information received from DGIT(Inv.) held that assessee has failed to prove the purchases from four parties with necessary evidence and hence total purchase amounting to Rs.86,80,048/- has been treated as unexplained expenditure u/s 69C of the Act. Aggrieved by the assessment order, the assessee is in appeal before the Ld. CIT(A).
3. Before the Ld. CIT(A), the assessee has reiterated its submissions made before the Ld. AO to argue that merely for the reason that notice issued u/s 133(6) were 4 ITA No.990/Mum2018 A Varshit & Company returned, purchase which are supported by valid evidence cannot be treated as accommodation entries. The assessee further submitted that the assessee is in the business of diamond trading, where the profit margin is varies 1 to 3 % and this fact has been further strengthened by the report of task force group of diamond industry, constituted by Govt. of India. After considering the BAP scheme as per which the task force has estimated gross profit of 2 to 3% for manufacturing activity and 3% for trading schemes.
4. The CIT(A), after considering relevant facts and also by taking other facts including VAT rate applicable on diamond products, directed the AO to sustain 3% profit on alleged bogus purchases from concerns which are operated and controlled by Rajendra Jain Group. Relevant observation of the Ld. CIT(A) are reproduced hereunder:-
5.12 In the light of the above, one has to see in the present case, which is in the line of trading in diamonds, what is the correct profit element embedded in such bogus purchases. In the case of diamond trade, generally the rate of VAT is stated to be charged @ 1% on the purchases made from Mumbai and on the purchases made under Form 'H' no VAT is levied due to export commitment and purchases made from Surat also there is no VAT levied. Coming to the profit margin in the trade, the task force group for diamond industry, after considering the BAP scheme, recommended presumptive tax for net profit calculated ©2% of trading activity and ©3% for manufacturing activity or @ 2.5% across the board. It is also ascertained that the operating profit in case of diamond trading for computation of ALP by the TP wing is consistently in the region of around 1.75% to 3%. In view of the same considering the profit margin in this sector i.e. around 2 to 3 percent and the taxes saved is around 1% I am of the considered opinion that if the addition is sustained to the extent of 30/0 of the purchases made, as the profit element embedded in such purchases from the parties belonging to the Rajendra Jain Group concerns, that will meet the ends of justice. In view of the same, I direct the AO to restrict the addition @3% of the purchases made from Aadi Impex, 5 ITA No.990/Mum2018 A Varshit & Company M/s.Vitrang Jewels, M/s.Avi Exports and M/s.Sparsh Exports Pvt.Ltd. of Rs.86,80,048/-. This ground is partly allowed."
5. The Ld. DR, submitted that the Ld. CIT(A) was erred in scaled down the addition made towards alleged bogus purchases from firm controlled by Rajendra Jain Group without appreciating the fact that Rajendra Jain p himself, during the course of search, admitted that he is indulged in providing accommodation entries without actual delivery of goods and this fact was further strengthened by enquiries conducted by the AO where he had conducted independent enquiries as per which none of the parties replied to notices issued u/s 133(6) of the Act, therefore, there is no reason for the Ld. CIT(A) to go on the basis of VAT rate applicable to the diamond industries as well as BAP scheme which are relevant under normal circumstances where parties are involved in real business activity. In this case, facts were brought out during the course of proceedings coupled with report of the DGIT(Inv.) undisputedly, proved that the assessee is beneficiary of bogus bills issued by Rajendra Jain Group and hence the findings of the Ld. CIT(A) are inconsistent with fact gathered during the course of search. The Ld. DR further submitted that moreover ITAT, Mumbai, in assessee's own case, for AY 2007-08 in ITA No.6794/Mum/20016 has confirmed the additions on bogus purchases @ 12.5% on such purchases. Therefore, consistent with view taken by the Tribunal, Mumbai Bench, in assessee's own case , additions may be sustained @ 12.5% on alleged bogus purchases.
5. The Ld. AR on the other hand, strongly supported the order of the Ld. CIT(A) and submitted that the assessee had furnished sufficient details including proper tax invoice and also clarified the AO with regard to other details including lorry receipt and transport 6 ITA No.990/Mum2018 A Varshit & Company bill considering the industrial practice that those documents are not applicable. The Ld. AR further submitted that the AO had accepted the books of account including stock register. The AO never doubted sales declared by the assessee. In absence of any observations as to incorrectness of books of accounts, merely for the reason that some information received from third parties, genuine purchases cannot be doubted to make additions. The AR also argued on applicability of provisions of section 69C of the Act in light of the decision of ITAT Mumbai Bench, in the case of DCIT vs M/s R.R. Oomerbhoy Pvt. Ltd. and submitted that when sufficient evidence are filed to prove the purchases, no additions could be made u/s 69C of the Act.
6. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. The facts brought out by the AO in the context of DGIT(Inv.) report and also statement of Shri Rajendra Jain, during the course of search proceedings, in his case were not fully controverted by the assessee with any evidence. It is also an admitted fact that the parties from whom purchase of materials stated to have been made by the assessee are not responded to notice issued u/s133(6) by the AO during the assessment proceedings. Under these factual background, if you examine the claim of the assessee that purchases are supported by proper tax invoice and payment for such purchase have been made through banking channel, one undoubted fact emerging from the above is that although the assessee has filed certain basic evidence including purchase bills and payments, but failed to file further evidence to rebut the findings of the AO in the light of report of DGIT(Inv.) which was further supported by the statement of 7 ITA No.990/Mum2018 A Varshit & Company Rajendra Jain during search proceedings in his case. We further noticed that Shri Rajendra Jain has admitted in the statement recorded u/s 132(4) of the Act that he is indulged in providing accommodation entries without there being any business activity. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that purchase from firm controlled and managed by Rajendra Jain and Associates are genuine which are supported by valid evidence.
7. Having said so, let us, examine, what is the finding of the AO in arriving at conclusion that purchases are bogus which are not supported by proper evidence. The AO has gone routine exercise by issuing 133(6) notices to ascertain without carrying out further investigation to know exact nature of the transaction between the assessee and said firms when the assessee has filed sufficient materials including purchase bills. Therefore, we are of the considered view, it is difficult to accept the version of the AO that purchases from above parties are bogus in nature which are not supported by valid evidence. Under these facts, the only option left for the authorities is to settle the controversy by estimating income of the assessee from these kind of transactions. The assessee contended that profit percentage in diamond trade varies from 1 to 3% and also VAT rate applicable for diamond products is at 1%, considering these facts, the assessee argued for reasonable estimate of profit on alleged bogus purchases and also as per the Ld. AR for the assessee whatever percentage estimated by the Ld. CIT(A) is quite reasonable, there is no reason to deviate from the percentage of profit adopted by the Ld. CIT(A). But, fact remains that the Co-ordinate Bench of the Tribunal in assessee's own 8 ITA No.990/Mum2018 A Varshit & Company case in ITA No.6794/Mum/2016 has considered identical facts in the light of DGIT(Inv.) report and also the statement of Shri Rajendra Jain given during course of search, to arrive at a conclusion that 12.5% profit on alleged bogus purchases is reasonable and would meet ends of justice. For the year under consideration, the facts are identical and even parties from whom purchases were made by the assessee for AY 2007-08 and for the present assessment year are one and the same. Under these facts, it is difficult to take different view from the view already taken by the Co-ordinate Bench. Further, the Co- ordinate Bench of Mumbai Tribunal had taken a consistent view in case of alleged bogus purchases and depending upon the facts of each case has directed the AO to estimate profit percentage of 5 to 12.5% on alleged bogus purchases. In this case, considering the facts and circumstances and also keeping in view, decision taken by the Co-ordinate Bench for AY 2007-08, we are of the considered view that profit percentage applied by the Ld. CIT(A) on alleged bogus purchases appears to be less and hence direct the AO to consistent with view taken by the Co-ordinate Bench, we adopt 12.5% net profit on alleged bogus purchases.
8. In the result, appeal filed by the Revenue is partly allowed.
Order pronounced in the open Court on 27/02/2019.
Sd/- Sd/-
(Mahavir Singh) (G. Manjunatha)
या यक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मब
ुं ई Mumbai; दनांक Dated : 27/02/2019
f{x~{tÜ? P.S //. न.स.
9
ITA No.990/Mum2018
A Varshit & Company
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ! / The Appellant (Respective assessee)
2. "#यथ! / The Respondent.
3. आयकर आय&
ु त(अपील) / The CIT, Mumbai.
4. आयकर आय&
ु त / CIT(A)- , Mumbai,
5. (वभागीय " त न+ध, आयकर अपील य अ+धकरण, मब
ुं ई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील%य अ&धकरण, मब
ुं ई / ITAT, Mumbai