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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI VIKAS AWASTHY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI VIKAS AWASTHY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain v. Income Tax Officer – 19(3)(1) C/o. M.A. Enterprises Mumbai A/4, Madhavji Building 260, S.V.P Road Opp. Alankar Cinema Mumbai – 400004 PAN: AGCPJ5330L (Appellant) (Respondent)
Assessee Represented by : Shri Prakash Jotwani Department Represented by : Shri Suhas Dabade
Date of conclusion of Hearing : 21.09.2023 Date of Pronouncement : 21.09.2023
O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-30, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 06.06.2019 for the A.Y.2010-11 in which enhanced the addition of purchases to the extent of 100% of ₹.25,73,433/- as against
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 12.5% of the alleged non-genuine purchases made by the Assessing Officer.
At the outset, we observe that the present appeal is filed by the 2. assessee with a delay of 409 days and assessee also filed an affidavit in this regard and prayed for condonation of delay. Assessee filed an affidavit dated 23.05.2023 and submitted as under: -
“1. That I am the authorized proprietor of M/s. Dhantech Metal Industries and am fully conversant of the facts deposed below: 2. That I filed my return for A.Y 2010-11 declaring total income of Rs.3,52,110/-. 3. That my CA had appeared before the AO in assessment proceedings for A.Y 2010-11. 4. That in A.Y 2010-11 the AO made additions towards bogus purchases and I preferred an appeal before CIT(A) against the assessment order. 5. That when appeal was listed for hearing, my CA appeared and made the necessary compliances and submissions. 6. That subsequently in the course of hearings, on the advice of my CA I had requested the CIT(A) to withdraw the appeal vide letter dated 24.12.2018 and informed the same to my CA. 7. That I was in the bonafide belief that the appeal for the said assessment year was withdrawn by the CIT(A) as requested by me. Therefore, I did not verify on the portal about the status nor did my CA. I am not aware whether the order of the CIT(A) was served on me as I do not have any copy or original of the same. 8. That on verification of the portal, I have downloaded the copy of the order of the CIT(A) and I approached an Advocate to do the needful
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 9. That subsequently the said Advocate filed a Writ Petition in August 2022 and it seems that in September, he withdrew the same. This fact I was also not aware and nor was my CA aware. 10. That it seems the AO had issued several penalty notices too, which I nor my CA were aware. 11. That subsequently I received a penalty order dated 31.01.2022 from the AO. 12. That in the said penalty order, it came to light that the appeal filed was dismissed by CIT(A) and income also was enhanced. This fact I was not aware and nor was my CA aware of it. Thus it can be stated that I received the CIT(A) order on or after 31.01.2022. 13. That on being made aware on the dismissal of the appeal, I had informed the AO that I am in the process of filing an appeal in ITAT against Quantum assessment and in meanwhile I had started consulting for professional help towards filing of ITAT appeal. But my lawyer preferred an appeal to the High Court in August 2022. The Writ however was disposed off by the High Court in September 2022. 14. That from January 2023 to May 2023, my mother was unwell and I was most of the time staying in Ahmedabad with her and hence no steps were taken to file the appeal to ITAT. 15. That I am now filing the appeal to ITAT leading to delay of approx 303 days being period September 2022 to June 2023. If the period is considered from February 2022 to June 2023, then the delay is around 515 days. 16. That an identical case was filed for A.Y 2011-12 in which addition of 12.5 of purchases were added. That I had requested for withdrawal of the said appeal and the CIT(A) agreed for withdrawal, thus confirming only 12.5% of purchases. 17. That the delay in filing this appeal in ITAT was not due to any willful default but due to unawareness of the appeal being disposed off and also delay in looking for professional help in filing the appeal to ITAT. I request you to grant me one more opportunity to be heard and delay in filing of appeal be condoned. That on merits, I have a good case since the Bombay High Court is in favour of my case.”
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 3. Ld. DR objected for the condonation of delay and however, he has not filed any submissions against the affidavit as well as the facts described in the above affidavit.
Considered the submissions of both parties, we found that the 4. reasons brought on record by the assessee are reasonable. It is fact on record that assessee has failed to file the appeal in time. For the sake of overall justice, the Hon'ble Supreme Court in the case of Collector, Land Acquisition v. MST. Katiju and others, [1987] 167 ITR 471, held as under: -
“3. The legislature has conferred the power to condone delay by enacting s. 5 of the Limitation Act of 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on "merits". The expression "sufficient cause" employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice—that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. 4. And such a liberal approach is adopted on principle as it is realized that: 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties.
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense and pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.” 5. Respectfully following the ratio laid down in the above judgment, we condone the delay in filing the appeal and decide the appeal on merits.
Brief facts of the case are, assessee an individual engaged in the business of ferrous and non-ferrous metal and general supplies and filed return of income on 24.09.2010 declaring income of ₹.3,52,110/- for the A.Y.2010-11, and the return was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). Subsequently, Assessing Officer received information from the DGIT(Inv.,), Mumbai about the accommodation entries provided by various dealers and assessee was also one of the beneficiary from those dealers. The assessment was reopened u/s. 147
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain of the Act based on the information received from DGIT (Inv.,), Mumbai, that the assessee has availed accommodation entries from the parties mentioned at Page No. 2 of the Assessment Order who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was asked to prove the genuineness of the purchases made from the parties referred in the Assessment Order.
In response assessee furnished copies of bank statements evidencing payments made through proper channels, chart showing the details of purchases of the alleged parties and the corresponding sales and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine. However, parties were not produced before the Assessing Officer.
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 assessee 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 6
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain remark “not known” and the assessee has not produced the parties before the Assessing Officer. It is the finding of the Assessing Officer that assessee failed to produce the parties and as such the purchases to the extent made from the parties are remained unverifiable. Therefore, Assessing Officer treated ₹.3,23,948/- being 12.5% of the total non-genuine purchases of ₹.25,73,433/- for the A.Y. 2011-12 as non-genuine. On appeal the Ld.CIT(A) enhanced the disallowance to ₹.25,73,433/- being 100% of the bogus purchases stating that there was no compliance to the notice of enhancement u/s. 251(1)(c) of the Act.
Aggrieved with the above order, assessee is in appeal before us raising following grounds in its appeal: -
“1 a. The CIT(A) erred in law and on facts in confirming the disallowance of Rs.3,23,948 made by AO on purchases of Rs.25,73,733/- being 12.5% of bogus purchases. b. The CIT(A) failed to appreciate that the purchases were genuine which led to sales and further erred in not considering the documents filed to prove genuineness including quantitative tally of purchases with sales. c. The CIT(A) failed to appreciate that the information received from the Sales Tax Department which was based on the information given on website of Sales Tax Department is general information and cannot form a reason to rely upon and reopen the case u/s 147 of the act. 2) The CIT(A) erred in enhancing the estimate made by the AO of 12.5% to 100% of such bogus purchases, on the ground that entire purchases are ingenuine, while on the other hand accepting the sales as declared by the appellant. 7
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 3) The CIT(A) failed to appreciate that if at all disallowance is to be made, it should be restricted to Gross Profit Ratio as without purchases there can be no corresponding sales. The appellant contends that all the revenues and cost are recorded and thus the entire purchases of the appellant are genuine purchases and disallowance is not warranted in appellant's present case which has been enhanced by CIT(A) to 100% and erred in not following Bombay High Court decision in the case of Mohammad Haji Adam.”
At the time of hearing, Ld. AR initially submitted that the assessee made prayer before Ld.CIT(A) to withdraw the appeal. However, Ld.CIT(A) instead of allowing the withdrawal she proceeded to enhance the addition without giving proper notice. Ld. AR submitted that payments were made through banking channels and the sales were accepted by the department. He submitted that once that sales were accepted the purchases cannot be treated as non-genuine and prayed to set-aside the order of the Ld.CIT(A). Ld. Counsel for the assessee further submitted that the assessee is in the business of Iron and steel and the addition made by the Ld.CIT(A) is on higher side, thus requested to reduce the same.
On the other hand, Ld. DR relied on the orders of the Ld.CIT(A).
Considered the rival submissions and material placed on record and perused the orders of the authorities below. At the time of hearing, the bench directed the Ld. DR to bring the case records from the office of
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain Ld.CIT(A) particularly in context to notice of enhancement and date of service of the said notice but it is brought to our notice that the records were not available. For the sake of completeness, the letter dated 18.09.2023 is reproduced below: -
“To, The Joint Commissioner of Income Tax (Sr.DR)(ITAT), "SMC Bench Mumbai. Sub: Appeal in the case of Rakesh Mafatial Jain having PAN:AGCPJ5330L, AY- 2010-11. -reg. Ref.: No.SR.DR/ITAT/C-Bench/2023-24 dated 13.09.2023. Please refer to the above. 2. It is to inform that the erstwhile charge of CIT(Appeals)-30, Mumbai was changed into faceless charge of CIT(Appeals)Unit -28. As charge was converted into faceless charge all the physical records were sent to PN writer. 3. On searching of the database of the PN writer it is found that case records of only assessment year 2011-12 in the case of Rakesh Mafatlal Jain was present and there was no case records available pertaining to the AY 2010-11. Further on searching of the physical records available in the office no case records were found of the appellant. 4. Moreover, as per ITBA system there were no records as to when notice of enhancement and copy of CIT(Appeal) order were served on the appellant. xxx Jadish P. Jangid Commissioner of Income Tax (Appeals)Unit-28 Mumbai
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain 13. Since there is no record available for this assessment year and the issue was decided by Ld.CIT(A) without hearing the assessee, we consider it appropriate to decide the issue based on the facts available on record.
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 Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a 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 held 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. Nikunj Eximp [216 Taxman.com 171]. In our considered view 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 are from the parties as claimed, especially in the absence of any confirmations from them. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e. Ferrous and Non- Ferrous metals, it would be justified if the profit element 10
ITA NO. 2107/MUM/2023 (A.Y: 2010-11) Rakesh Mafatlal Jain embedded in those purchases are estimated at 12.5%. Accordingly, we set-aside the order of the Ld.CIT(A) and sustain the order of the Assessing Officer. Grounds raised by the assessee are partly allowed.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 21st September, 2023.
Sd/- Sd/- (VIKAS AWASTHY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 21/09/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.
//True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum