SOBHAGMULL GOKALCHAND JEWELLERS,MUMBAI vs. DCIT 19(3), MUMBAI, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER (Assessment Year: 2006-07) Sobhagmull Gokalchand Jewellers, EC 8010/B2, Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (East), Mumbai - 400051 [PAN: AAKFS9735L] …………… Appellant DCIT 19(3), Mumbai, Vs Matru Mandir Building, 1st & 2nd Floor, Nana Chowk, Bhatia Hospital Lane, Javji Dadaji Marg, Grant Road (West), Respondent ……………. Mumbai - 400007 Appearance For the Appellant/Assessee : Shri Sunil Hirawat For the Respondent/Department : Shri Ajudiya Manish Date Conclusion of hearing : 04.12.2023 Pronouncement of order : 18.12.2023

O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Appellant has challenged the order, 1. dated 28/07/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2006-07, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 24/12/2018, passed under Section 143(3) read with Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

(Assessment Year: 2006-07) The Appellant has raised following grounds of appeal: 2.

1. On facts and in law, the Learned Commissioner of Income Tax- Appeals (hereinafter referred to as Ld. CIT-A) had erred in passing the order without considering the submissions of the appellant. Under the facts and circumstances he ought to have considered the submissions of the appellant.

2. On facts and in law, the Ld. CIT-A had erred in confirming the addition of Rs. 6,68,96,780/- being the purchases made from the alleged bogus parties without appreciating that the corresponding sales have been accepted by the assessing officer.

3. On facts and in law, the Ld. CIT-A had erred in not restricting the addition to the total income at Rs. 1,67,242/- as against Rs. 6,68,96,780/- in the impugned assessment order as laid down by the jurisdictional High Court (Bombay) in the case of M. Haji Adam & Co. (ITA NO. 1004 of 2016 dated 01.02.2019).

4. On facts and in law, the Ld. CIT-A had erred in not following the decisions of Hon. ITAT in the case of the appellant relating to AY 2008-09, ΑΥ 2009-10, AY 2010-11, AY 2011-12 and AY 2013-14.

5. Without prejudice to grounds of appeal no. 1 to 4 above, the Ld. CIT-A had erred in not deciding the grounds of appeal no. 2 which read as under:

2. Without prejudice to Ground no. 1 above, on facts and in law, the LAO had erred in enhancing the addition made in the order giving effect to the order of Hon. High Court. Under the facts and circumstances of the matter, he ought not to have done the same.

6. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before at the time of hearing of the appeal, so as to enable the Hon. ITAT to decide this appeal according to law.” The relevant facts in brief are that the Appellant is a registered 3. partnership firm, engaged in the business of manufacturing, trading, import and export of precious diamond, semi-precious stones etc.

3.1. The appeal before us pertains to Assessment Year 2006-07. This is (Assessment Year: 2006-07) the second round of litigation.

3.2. In the first round, the return filed by the Appellant for the Assessment Year 2006-07 was selected for scrutiny vide Assessment Order, dated 24/12/2018. The Assessing Officer completed the assessment under Section 143(3) of the Act vide order dated 24/12/2018 at assessed income of INR 1,92,66,117/- after making the addition of INR 1,67,24,195/- being 25% of unverifiable purchases aggregating to INR 6,68,96,780/- from the following parties:

S. Name of the party Purchase amount No. (In INR) 1 M/s Pujan Impex, 1108/B, Hath Falia, 1,77,62,548 Haripura, Surat 2 M/s Krishna Diam, 203, Ghiya Road, 65,12,065 Mahidharpura, Surat 3 M/s Sadiya Exports, Vishwas Apartment, 2,32,90,157 Ghiya Road, Surat 4 M/s Krishna Diamond (P) Ltd, Nagriwadi, 64,16,950 Surat 5 M/s Simran Gems, 203, Ghiya Road, 1,29,15,060 Mahindharpura, Surat Total 6,68,96,780/-

The Appellant carried the issue in appeal before CIT(A) who granted partial relief and vide order, dated 10/06/2010, restricted the disallowance on account of unverifiable purchases to 7% of declared sales of INR 10,75,48,511/-. Being aggrieved, the Appellant preferred appeal before the Tribunal. Vide order dated 30/06/2011, passed in cross-appeals for the Assessment Year 2006-07, the Tribunal held that the CIT(A) was justified in directing the Assessing Officer to apply Gross Profit Rate of 7% and upheld the addition to the extent of INR 6,19,775/- as confirmed by the CIT(A). Still being aggrieved, the Appellant carried the issue in appeal before the Hon’ble Rajasthan High Court. Vide order dated 25/04/2017, passed in D.B. Income Tax

(Assessment Year: 2006-07) Appeal 667/2011, the Hon’ble Rajasthan High Court remitted the matter back to the Assessing Officer for fresh adjudication.

3.3. The appeal filed by the Appellant before us arises from the Assessment Order, dated 24/12/2018, passed by the Assessing Officer pursuant to the above order of the Hon’ble Rajasthan High Court. The Assessing Officer vide order dated 24/12/2018, passed under Section 143(3) read with Section 260A of the Act, made addition of INR 6,68,96,780/- being 100% of the alleged bogus purchases. In appeal, the CIT(A) decline to interfere with the order passed by the Assessing Officer and thus, confirmed the addition of INR 6,68,96,780/- made by the Assessing Officer. Being aggrieved, the Appellant is now in appeal before us.

3.4. The Ld. Authorised Representative for the Appellant made following submissions: (a) The Appellant purchased cut and polished diamonds from five parties and exported the same. All the purchases made from the aforesaid five parties have been sold/exported. The Assessing Officer has not doubted the sales/exports. It is submitted that all the purchases are genuine purchases as there cannot be sales without purchases. Copies of purchase bills were submitted during the original assessment proceedings. The payments for purchases made to the five parties under consideration were made through banking channel by way of account payee cheques. Copy of bank statement of the Appellant showing payments was also submitted along with copies of Accounts of all the five parties in the Books of the Appellant. During the hearing of appeal before learned CIT(A), the Appellant submitted confirmations, copies of supplier's account, copies of invoices, acknowledgement of Return of income of suppliers,

(Assessment Year: 2006-07) stock details & bank statements of suppliers, etc. As these evidences were filed for the first time the same were forwarded to the Assessing Officer for his remand report which was received by him on 11/05/2010. In relation to the purchase transactions, the Appellant is required to establish Identity of the supplier, the capacity of such supplier to supply the goods, and the genuineness of the transaction. All the three ingredients were fulfilled in the present case. The identity of all the 5 suppliers stand proved by the fact that they are having Permanent Account Numbers and they had their own Bank Accounts at Mumbai/Surat and had independent Registration numbers under Sales Tax. The capacity to supply the goods stood proved as the parties furnished their stock position out of which goods were issued and sales made to Appellant. The genuineness of the transactions stood proved by the fact that all the parties have responded to summons issued under Section 131 of the Act. The books of account of the Appellant were being maintained regularly and properly. Trading account was backed by quantitative tally duly supported by stock register, opening & closing stock, inventories are verifiable, Gross Profit Rate declared in diamond account was more than 6% and sales were made of identifiable purchases. There was no defect in the accounts which are fully audited and supported by tax-audit report.

(b) Without prejudice to the aforesaid, the Gross Profit Rate declared during the year may kindly be accepted. During the year under reference the assessee firm had declared Gross Profit Rate of 6.42% whereas Gross Profit Rate declared and accepted in Assessment Year 2004-05 and 2005-06 was 6.37% and 6.92%, respectively. The Appellant firm's entire sales are export 5

(Assessment Year: 2006-07) sales.

(c) The relevant assessment proceedings were not fresh assessment proceedings, but were set aside proceedings. In the original order passed under Section 143(3) dated 24/12/2008, the Assessing Officer has made addition in respect of 25% of the alleged purchases. Under these circumstances, the addition to the total income cannot be 100% of the purchases.

3.5. Per contra, the Ld. Departmental Representative placed reliance upon the paragraph 13 to 14.6 of the Assessment Order and submitted that the Appellant had made bogus purchases from five parties out of which two parties belong to the Bhanwarlal Jain Group. As regards, purchases made from the other three parties, the Ld. Departmental Representative submitted that in the second round of litigation, the Assessing Officer, CIT(A) and ITAT returned concurrent findings with the purchases were bogus in nature in the first round of litigation. Accordingly, the Assessing Officer and the CIT(A) were justified in confirming the addition made by the Assessing Officer at the rate of 100% bogus purchases in the second round of litigation.

3.6. We have considered the rival submissions and perused the material on record. The Appellant placed before us the common orders passed by the Tribunal for the Assessment Years 2008-09, 2009-10 & 2013- 14 [ITA No. 3767, 3768 & 3771/Mum/2018, dated 31/07/2019 and Assessment Years 2010-11 & 2011-12 [ITA No. 3769 & 3770/Mum/2018, dated 10/01/2020] wherein, following the decisions of Hon’ble Bombay High Court in the case of Principal Commissioner of Income Tax Vs. Mohammad Haji Adam & Co. : [2019] 103 taxmann.com 459 (Bombay)[11-02-2019], the addition on account of bogus purchases have been restricted to gross profit embedded in the (Assessment Year: 2006-07) alleged bogus purchases determined taking into account the rate of profit earned in respect of genuine purchases declared.

3.7. We note that the Mumbai Bench of the Tribunal has, vide order dated 10/01/2020, passed in appeals for the Assessment Years 2010-11 and 2011-12, held as under: “8. We have given a thoughtful consideration and find that the issue as regards the quantification of the profit involved in making of the purchases by the assessee from the open/grey market is squarely covered by the order of the ITAT "SMC", Mumbai, in the assesses own case for Assessment Years 2008-09, 2009-10 and 2013-14 in M/s Sobhagmull Gokalchand Jewellers Vs. ACIT-19(3), Mumbai [ITA No.3767, 3768 & 3771/Mum/2018, dated 31/07/2019]. On a perusal of the aforesaid order, we find that the Tribunal by drawing support from the judgment of the Hon'ble High Court of Bombay in the case of Pr. CIT Vs. M/s Mohhomad Haji Adam & Co. [ITA No. 1004 of 2016, dated 11.02.2019], had directed the Assessing Officer to restrict the addition/disallowance to the extent of bringing the gross profit rate on the impugned bogus purchases at the same rate of the other genuine purchases declared by the Appellant after calling for the details and the verification of records. As the facts and the issue involved in the captioned appeals remains the same as was there before the Tribunal in the aforementioned years, therefore, finding no reason to take a different view, we respectfully view we follow the same. Accordingly, we restore the matter to the file of the A.O with a direction to restrict the addition/disallowance only to the extent of bringing the G.P rate of alleged bogus purchase at the same rate as that of the other genuine purchases declared by the Appellant after calling for the details and verification of record. Needless to say, the assessee shall in the course of the „set aside‟ proceedings provide the requisite details as called for by the A.O. As such, the order passed by the CIT(A) is set aside in terms of our aforesaid observations” 3.8. We further note that the Appellant had filed the requisite details relating to the Gross Profit Rate declared by the Appellant, during the proceedings before the authorities below. in the first round of litigation, vide order, dated 10/06/2010, the CIT(A) determined and applied the gross profit rate of 7% observing as under: “Thus the declared g.p. rate of 6.42% is lower than 6.92% declared in immediate preceding year as well as 6.37% declared in the year before. No justification has been given for fall in g.p. rate by 0.50% when sales are also reduced from Rs.17.21 cr. to Rs.10.75 cr. Looking

(Assessment Year: 2006-07) to the past history of the case the AO is directed to apply g.p. rate of 7% on declared sales of Rs.10,75,48,511/- and make trading addition. With this second ground of appeal is decided against the appellant but third ground of appeal is decided partly in favour of the appellant.” Taking a view consistent with the view taken by the Mumbai Bench 4. of the Tribunal in the case of the Appellant for the Assessment Years 2010-11 and 2011-12, and thus, respectfully following the decision of Hon’ble Bombay High Court in the case of Principal Commissioner of Income Tax Vs. Mohammad Haji Adam & Co (supra) and taking into account the above factual findings returned by the CIT(A) vide order dated 10/06/2010 passed in the first round of litigation, we direct the Assessing Officer to restrict the addition/disallowance for the Assessment Year 2006-07 only to the extent of bringing the gross profit rate of alleged bogus purchase at the aforesaid rate of 7% after verification of record. In terms of the aforesaid Ground No. 1 to 5 raised by the Appellant are partly allowed, while Ground No. 6 raised by the Appellant is dismissed as being infructuous.

In result, the present appeal preferred by the Assessee is partly 5. allowed.

Order pronounced on 18.12.2023.