WAMAN HARI PETHE JEWLLERS,MUMBAI vs. ACIT 16(3),

आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member These three appeals, filed by the assessee, being to 5683/Mum/2016 for assessment years 2011-12, 2010-11 and 2012-13 respectively , are directed against common appellate order dated 14.06.2016 passed by learned Commissioner of Income Tax (Appeals)-30, Mumbai (hereinafter called “the CIT(A)”), for the aforesaid three assessment years, the appellate proceedings had arisen before learned CIT(A) from three different assessment orders passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 (hereinafter called “the Act”) all dated 20-3-2014 for the aforesaid three assessment years.

I.T.A. No.5681 to 5683/Mum/2016

2. He further erred in confirming disallowance of Rs. 29,139/- being depreciation on capital expenditure of Rs. 2,91,392/- on the ground that the appellant appeared as beneficiary on account of taking bogus bills without taking delivery of the good.

Appellant craves the leaves to add, alter or amend Grounds of Appeal, if felt necessary.”

3. The brief facts of the case are that the assessee is in the business of manufacturing , retail trading and service of gold ornaments, silver articles and jewellery. An exhibition of gold/diamond jewellery and silver items was conducted by the assessee from 15.10.2011 to 17.10.2011 at Belgaum. After conclusion of the said exhibition , the assessee sent all papers of jewellery to Mumbai by Road and Jewellery was transferred by Air. The General Manager of the assessee carried cash of Rs. 25.62 Lakh, old jewellery purchased from customers and two cheque amounting to Rs. 29,700/- by Air and was detained by the Police Authorities, Belgaum on Airport. The case was referred to Income Tax Department by Police Department and the Revenue requisitioned cash and documents u/s. 132A of the 1961 Act. This was the background under which assessment proceedings were conducted by the AO leading to culmination of the assessment order dated 20-03-2014 passed by the AO u/s. 143(3) r.w.s. 153A of the Act.

During the course of assessment proceedings conducted by the AO u/s 153A r.w.s. 143(3) of the Act, an intimation was received by the AO from DGIT(Inv) , Mumbai wherein it was stated that information was received

I.T.A. No.5681 to 5683/Mum/2016 from Sales Tax Department , Government of Maharashtra regarding bogus purchases/ Hawala transactions , wherein the assessee was listed as beneficiary of the aforesaid accommodation entries towards bogus purchases. The assessee was stated to be the beneficiary of taking bogus bills without delivery of goods from the following three parties:-

Sr. No. Name of the Parties Hawala Tin Amount Involved(In Rs.) 1. Coral Trading Co. 27060224373V 2,10,135 2. Padm Enterprises 27270619872V 29,973 3. Aarti Enterprises 27710671331V 90,284 Total 3,30,392 Notices u/s. 133(6) were issued to these parties by the AO which returned un-served . Inspector was deputed by the AO who gave report on 03.02.2014 wherein Inspector reported that no such concerns were existing at the given addresses. The assessee was asked to prove the genuineness of the purchases and the assessee submitted they had opened a new showroom in Aurangabad and materials were purchases from these parties for furnishing of the said showroom. The assessee could not produce these parties for verification before the AO. The AO observed that out of total expenses of Rs. 3,30,392/- , an amount of Rs. 2,91,392/- was of capital in nature which was capitalized by the assessee in its books of accounts , while the rest of amount of Rs. 39,000/- was claimed as an revenue expenditure. Thus , the AO disallowed depreciation to the tune of 10% on capital expenditure of Rs. 2,91,392/- leading to disallowance of depreciation to the tune of Rs. 29,139/- and further disallowance of revenue expenditure to the tune of Rs. 39,000/- was made by the AO which was added to income, vide assessment order dated 20-03-2014 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act.

4. The assessee went in appeal before the learned CIT-A and the assessee contended that assessee is a family run concern being 100 years old partnership firm engaged in the business of manufacturing , trading and 3

I.T.A. No.5681 to 5683/Mum/2016 services of gold ornaments, silver article and jewellery spread all over India. The assessee submitted before learned CIT(A) that it opened a new showroom at Aurangabad and had incurred capital expenditure towards furnishing of the said showroom . It was submitted that the turnover of the assessee during the relevant year was Rs. 276.64 crores . It was also submitted that capital expenses were incurred to the tune of Rs. 2,76,71,895/- , out of which small amount of Rs. 2,91,392/- was disallowed which was small portion of the expenditure that mainly comprised of main electrical panel board in which volt meter, OEM meter, MCB circuit breakers, different types of switches , charger switches and hardware purchases used for construction. The certificate from Interior designer Rasika Enterprises was also given confirming that material was used for furnishing of the showroom at Aurangabad and the said material is physical present at the site . It was also submitted that revenue expenditure to the tune of Rs. 39,000/- was incurred for lighting the premises at Dadar owned by the assessee with light strips to commemorate completion of 100 years of business which is allowable as it had been exclusively used for the purpose of business of the assessee . It was submitted that payments were made by cross account payee cheque except for an small amount of expenses. It was submitted that in the invoices submitted by the suppliers who were allegedly being the hawala dealers have mentioned the registration number under Maharashtra VAT/CST and it is beyond the control of the assessee to know the reasons as to why said suppliers were not found at the given address. It was submitted that it is now more than five years after the purchases were made by the assessee and it was reiterated that just because notices u/s 133(6) issued by the AO returned un-served is not sufficient to hold that the said purchases are bogus . It was submitted that purchases were genuine and not bogus. The assessee relied upon the following decisions to support its contentions:-

I.T.A. No.5681 to 5683/Mum/2016 The learned CIT-A rejected the contentions of the assessee and held as under:-

“ Decision: 5. Carefully considered the rival submissions, perused the material on record and duly considered the factual matrix of the case as well as the applicable legal position, while arriving the following decision.

6. Ground No. 1 is general in nature. Hence, the ground needs no adjudication. Ground No. 2 and 3 of the grounds of appeal deal with the addition of Rs.39,000/- which amount is added fully, being the nature of revenue expenditure on the purchase which could not be substantiated and Rs. 29,139/- being 10% depreciation on capital nature of expenditure, on the balance amount of purchases appeared in the list of bogus purchases. AO perused the material on record and found that the appellant is one the beneficiary of such bogus bill as per the list supplied by the DGIT (Inv.), Mumbai. In view of the same, during the course of assessment proceedings which were under prepress, AO sent notices u/s 133(6) to all the three parties to verify the genuineness of such purchases. As all the notices sent were returned back unserved, the ITI attached to the Circle was sent for verification, who has reported that there is no concern existing at the given address, after conducting the on the spot inquiry. AO issued show cause notice on 05-02-2014 and also asked the appellant to produce the parties for verification. In response, it was explained by appellant that they have opened a new show room at Aurangabad and purchased material from said parties, but could not produce the parties. Out of total expenses of Rs.3,30,392/-, the expenses of capital in nature were of Rs.2,91,392/- and the rest of the expenses amounting to Rs.39,000/- were of nature of revenue expenditure. Hence, AO disallowed the depreciation of Rs. 29,139/- @ 10% on capital expenditure and entire revenue expenditure of Rs. 39,000/- was disallowed and added to the total income of the appellant. 6.1 During the present proceedings, Appellant contended that the alleged bogus purchases are mere 0.012% of the turnover and Rs. 2,91,392/- was a small portion of total capital expenditure of Rs. 2,76,71,895/-. The installation of main electrical panel board and extensive use of hardware required to commission the new jewellery showroom. Material purchased from the alleged dealers its utilization and mode of payment along with the certificate from the interior designer confirming the material is used for furnishing the show room were submitted to the AO during the assessment proceedings. Further the appellant has submitted that the expenditure with all genuine documents and amounts are paid through account payee cheques which are reflected in the banks statement which are genuine and AO failed to appreciate the same, it is stated. Notices issued u/s 133(6) returned unserved, that itself does not mean that purchases are bogus and it is beyond the control of the appellant after the lapse of 5 years of purchase why the suppliers were not found at the registered address which were earlier verified by the Sales Tax Department at the time of I.T.A. No.5681 to 5683/Mum/2016

registration. Appellant relied on four decisions of Hon'ble ITAT, Mumbai Benches which were mentioned in-the written submissions in Para-4 above where the Tribunal given relief with regard to the bogus purchase issue, and requested to delete the addition made on this count. 6.2 Perused the addition made by the AO and the grounds raised by the appellant against the addition made. During the course of assessment proceedings, Ld. AO issued notices u/s. 133(6) to ail the three parties from whom the appellant had purportedly made purchases. However, the said notices were returned unserved. Appellant submitted before the AO, the nature of transactions incurred with alleged bogus parties. It was seen by the AO that out of total expenses of Rs. 3,30,392/- the expenses of capital in nature were of Rs. 2,91,392/- and the rest of the expenses amounting to Rs. 39,000/- were of nature of revenue Hence AO disallowed the depreciation of Rs.29,139/- @ 10% on capital expenditure and entire revenue expenditure of Rs 39,000/- was disallowed and added to the total income of the appellant. The appellant was accorded sufficient opportunities to prove the genuineness of the purchases by producing the parties along with the books of accounts. However, he failed to do so and merely furnished the purchase invoices, bank statements evidencing payments through banking channels by issuing a/c payee cheques, chart showing purchases from the alleged parties. The AO also asked the appellant to produce the persons for verification of the genuineness of the purchase transactions, and the appellant failed to do so once again. A person who is claiming certain expenditure is duty bound to prove the claim when asked to do so. However, in the present case, the appellant failed to do so. AO made full-fledged inquiries in the case by sending notices u/s 133(6) of the Act and asking the ITI to verify the actual situation on the given addresses, who reported that the concerns do not exist in the given addresses. AO given opportunity to the appellant to produce the parties and the appellant failed to avail the opportunities given at the time of assessment, and merely stated that the purchases are genuine. As the purchases are said to be used in the furnishing of show room which is a capital asset to the extent of Rs. 2,91,392/- out of the total purchases, AO is right in making the disallowance to the extent of depreciation claim of Rs. 29,132/- on such asset and accordingly the addition is confirmed. The balance amount of Rs. 39,000/- is of revenue in nature and appellant failed to prove the genuineness of such purchases, AO making the entire amount as addition is confirmed and the appeal on these grounds is dismissed. The appellant also relied on case laws of the Hon'ble ITAT, on the bogus purchases issue, but on verification of the cases it is noticed that they are delivered in a different context, with respect to the purchasing the trading goods, whereas in the present case the appellant claimed to have been made the major portion of such purchases for furnishing the show room which means for acquisition of capital asset. Therefore, the decisions arrived in those cases are not applicable to the present case.”

I.T.A. No.5681 to 5683/Mum/2016 and gold items having operations spread across India. The assessee has many showroom and during the year Aurangabad showroom was furnished. It was submitted that the total capital expenditure for furnishing of the Aurangabad showroom was around to Rs. 2.76 crore out of which only Rs. 2,91,392/- was disallowed on the ground that assessee has made purchases from the three parties who are listed in the list of the alleged bogus dealers prepared by the Maharashtra VAT Department who are issuing bogus bills without supplying any material physically, which information was passed over to the Income Tax Department by Maharashtra VAT department. It was submitted that since capital expenditure of Rs. 2,91,392/- towards furnishing of Aurangabad Showroom was incurred , the same was capitalised by the assessee and depreciation to the tune of Rs. 29,139/- was claimed @ 10% which stood disallowed by the AO. It was submitted that further an amount of Rs.39,000/- were disallowed being revenue expenditure on the same ground that the material was purchased from these alleged bogus dealers . It was submitted that these were genuine expenses and should be allowed keeping in view that the assessee is a partnership firm existing for more than 100 years having turnover of Rs. 276.64 crores (pb/page29-audited P& L A/c) and the amount of disallowance represented an minuscule amount. The assessee drew our attention to page no. 35 of the paper book where in all the details of disallowance made by the AO for all the three years viz. AY 2010-11 to 2011-12 are placed:-

“M/s. WAMAN HARI PETHE JEWELLERS SUMMARY OF DISALLOWANCES A.Y. TOTAL DISALLOWANCE TOTAL AMOUNT OF CAPITAL REVENUE DEPRECIATION @ EXPENDITURE EXPENDITURE 10% SUSPECTED BOGUS PURCHASES 2010-11 3,30,392.00 2,91,392,00 39,000.00 29.139.00 68,139.00 2011-12 2,10,886.00 1,46,941.00 63,945.00 1,04,864,00 14,694.00 26,225.00 2012-13 36,828.00 36,828.00

Total Rs. 5,41,278.00 4,38,333.00 1,06,886.00 2,09,831.00 1,02,945.00 “

I.T.A. No.5681 to 5683/Mum/2016 The assessee also drew our attention to the audited accounts for the year ending 31st march 2010 , to contend that the turnover of the assessee was to the tune of Rs. 276.64 crores during the relevant year and it was submitted that the returned income was Rs. 15,74,45,120/- which was declared by the assessee in the return of income filed u/s. 139(1). Thus it was contended that no disallowance should be made . The assessee also drew our attention to various bills / invoices which were raised by the said parties which are placed in paper book /page no. 12 to 22. The assessee also drew our attention to the certificate issued by Rasika Enetrprises , dated 14-02-2014 wherein it was certified that material was used by them for creation of assets of the assessee at Aurangabad Showroom in 2009. The assessee also drew our attention to the order dated 31.01.2017 of the ITAT, Mumbai Benches in for AY 2010-11 in the case of ACIT vs. Shri Mahesh K shah and also decision of the Hon’ble Bombay High Court in the case of Nikunj Eximp Enterprises Private Limited ( 372 ITR 619)(Bom) to contend that no disallowance is warranted. Thus, in nutshell, the assessee prayed that no addition be made in the hands of the assessee and the additions so made by the AO and confirmed by learned DR be deleted .

On the other hand , Ld. CIT-DR submitted that all the intergradient for upholding the additions are present in this case . The learned CIT DR cited that incriminating information was received by Revenue from Sales Tax Department that these three parties who allegedly supplied material to the assessee were engaged in providing accommodation entries by issuing bogus bills without physically supplying any material and based upon that information DGIT(inv) had made inquiries. Notices u/s. 133(6) were issued by the AO to these three alleged hawala dealers , which notices returned unserved . Inspector was deputed by the AO for make field enquiries who gave an adverse report that the said parties are not existing at the given addresses . It was submitted that these three parties were also not produced by the assessee before the AO and hence prayer was made to confirm the additions. In the alternative , it was submitted that certain percentage of the profit embedded in the said alleged bogus purchases be upheld in view of decision of Hon’ble Supreme Court in the case of Kachwala Gems vs. JCIT [2007] 288 ITR 10 (SC).

I.T.A. No.5681 to 5683/Mum/2016

During the course of assessment proceedings conducted by the AO u/s 153A r.w.s. 143(3) of the Act, an intimation was received by the AO from DGIT(Inv) Mumbai wherein it was stated that information was received from Sales Tax Department , Govt. Of Maharashtra regarding bogus purchases/ Hawala transactions , wherein the assessee was listed as beneficiary of the aforesaid accommodation entries of bogus purchases. The assessee was stated to be the beneficiary of taking bogus bills without delivery of goods , from the following three parties:-

Sr. No. Name of the Parties Hawala Tin Amount Involved(In Rs.) 1. Coral Trading Co. 27060224373V 2,10,135 2. Padm Enterprises 27270619872V 29,973 3. Aarti Enterprises 27710671331V 90,284 Total 3,30,392

I.T.A. No.5681 to 5683/Mum/2016 Notices u/s. 133(6) were issued to these parties by the AO which returned un-served . Inspector was deputed by the AO who gave report on 03.02.2014 wherein Inspector reported that no such concerns were existing at the given addresses. The assessee was asked to prove the genuineness of the purchases and the assessee submitted they had opened a new showroom in Aurangabad and materials were purchases from these parties for furnishing of the said showroom. The assessee could not produce these parties for verification before the AO. The AO observed that out of total expenses of Rs. 3,30,392/- , an amount of Rs. 2,91,392/- was of capital in nature which was capitalized by the assessee in its books of accounts stated to be incurred towards furnishing of Aurangabad showroom , while the rest of amount of Rs. 39,000/- was claimed as an revenue expenditure. Thus , the AO disallowed depreciation to the tune of Rs. 291,139/- being 10% on capital expenditure of Rs. 2,91,392/- and further disallowance of revenue expenditure to the tune of Rs. 39,000/- was made by the AO which was added to income, vide assessment order dated 20-03-2014 passed by the AO u/s 143(3) r.w.s. 153A of the 1961 Act. This addition was later confirmed by learned CIT(A). The assessee is having turnover of Rs. 276. 64 crores . The assessee has undertaken furnishing of show room at Aurangabad during the relevant period and expenses of Rs. 2,76,71,895/- was incurred by the assessee for said furnishing , which was capitalised by the assessee itself . The Revenue has not doubted about the furnishing of the Aurangabad showroom rather based on information received from Maharashtra VAT department, the genuineness of the purchases to the tune of Rs. 3,30,392/- was doubted as the said purchases were from the three parties who were listed as accommodation entry provider by the Maharashtra VAT authorities engaged in issuing accommodation bills without supplying material. The assessee was stated to be beneficiary of these alleged bogus purchases to the tune of Rs. 3,30,392/-. Out of Rs. 3,30,392/- being alleged bogus purchases from the said three parties, the assessee has stated to have purchased material from these three parties to the tune of Rs. 2,91,392/- which was stated to be used by the assessee for the purposes of furnishing of Aurangabad Showroom , while rest being Rs. 39,000/- were material purchased stated to be purchased towards lighting claimed to be revenue expenses by the assessee. The notices u/s 133(6) issued by the AO to these three alleged bogus dealers returned unserved as also inspector deputed to I.T.A. No.5681 to 5683/Mum/2016 conduct field report gave adverse report as all these three parties did not existed at the given addresses. The assessee also could not produce these parties before the authorities below. The assessee gave details of the material being used in furnishing of Aurangabad showroom etc which was stated to be purchased under invoices from these three parties which are on record. The architect has given certificate that the said material was used by him for creation of asset at Aurangabad showroom which remained uncontroverted by Revenue . No doubt, the onus is on the assessee to prove genuineness of these purchases as these purchases are appearing in the books of the assessee. Under these peculiar facts and circumstances of the case and keeping in view scale of the operations of the assessee as reflected in turnover of Rs. 276.64 crores declared to the Revenue and smallness of the amount of the alleged bogus purchases to the tune of Rs. 3,30,392/- read in the light of explanations offered by the assessee and evaluated on touchstone of preponderance of probabilities, we are of the considered view that the profit embedded in the purchases need to be added to the income of the assessee which we estimate @ 12.5% of the alleged bogus purchases as fair and reasonable amount as there is every possibility that the assessee obtained material from grey market to save on costs etc while the invoices were obtained from these three parties because it remained uncontroverted by Revenue that material was used by the assessee as well on the other hand fact also remained that enquiry could not be completed by the authorities below as notices u/s 133(6) returned unserved, inspector gave adverse report after verification and also assessee could not produce these parties before the AO , but , however, the entire alleged bogus purchases could not be added as was done by the authorities below keeping in view ratio of decision of Hon’ble Supreme Court in the case of Kachwala Gems (supra) , wherein Hon’ble Supreme Court has held as under:- “11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the income-tax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly.”

I.T.A. No.5681 to 5683/Mum/2016 It is equally important at this stage to refer to a recent decision of Hon’ble High Court of Delhi in the case of Jaya Aggarwal v. ITO dated 13.03.2018 reported in [2018] 92 taxman.com 108(Delhi), wherein the Hon’ble High Court of Delhi in para 8 explained as to the application of theory of preponderance of probabilities as is applicable to the proceedings under the 1961 Act, as under:- “ 8. We find it difficult to accept the approach and findings recorded for several reasons. The brief order does not examine and consider the entire explanation and material on record as withdrawal of Rs.2,00,000/- in cash was undisputed. Naturally, the huge withdrawal was for a purpose and objective. From the beginning the explanation given was that withdrawal was to pay earnest money for purchase of immovable property, which deal did not fructify. Explanation given was not fanciful and sham story. It was perfectly plausible and should be accepted, unless there was justification and ground to hold to the contrary. Delay of some months in redeposit of part amount is the sole and only reason to disbelieve the appellant. Persons can behave differently even when placed in similar situations. Due regard and latitude to human conduct and behaviour has to be given and accepted when we consider validity and truthfulness of an explanation. One should not consider and reject an explanation as concocted and contrived by applying prudent man's behaviour test. Principle of preponderance of probability as a test is to be applied and is sufficient to discharge onus. Probability means likelihood of anything to be true. Probability refers to appearance of truth or likelihood of being realised which any statement or event bears in light of the present evidence (Murray's English Dictionary). Evidence can be oral and cannot be discarded on this ground. Assessment order and the appellate orders fall foul and have disregarded the preponderance of probability test.”

Thus, as per our detailed reasoning above, we direct the AO to disallow 12.5% of the alleged bogus purchases and accordingly depreciation shall be re-worked by the AO after such disallowance . The claim of the assessee for revenue expenditure shall also be accordingly reduced to the tune of additions sustained by us to the tune of 12.5% of the alleged bogus purchases . We order accordingly.

I.T.A. No.5681 to 5683/Mum/2016 These these two appeals filed by the assessee are also partly allowed. We order accordingly.