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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI GAGAN GOYAL, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/(NFAC), Delhi dated 14.06.2023 for the assessment year 2013-14.
2. At the outset, the Ld. AR of the assessee, assails the action of the Ld. CIT(A) sustaining the addition on merits, to the tune of Rs.59,53,440/- u/s 69C of the Income Tax Act, 1961 (hereinafter “the Act”). In other words, assessee assails the action of Ld CIT(A) upholding the action of AO, wherein he disallowed the entire purchases of diamonds made from M/s. Mohit Enterprises (alleged concern of Shri Bhanwarlal Jain Group).
3. Brief facts are that the assessee filed its return of income for AY. 2013-14 on 30.11.2012 declaring total loss of Rs.2,915/-. Later, 2 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. the case of the assessee was reopened u/s 147 of the Act by issuance of notice u/s 148 of the Act dated 21.03.2018. And since we are adjudicating the merits of the addition made after reopening the assessment, we are not discussing about the action of re-opening the assessment. According to the AO, he received information that from the Investigation Wing, Mumbai that Shri Bhanwarlal Jain (known entry operator) was managing and controlling M/s. Mohit Enterprises from which concern, the assessee has shown to have transacted/purchased diamonds worth of Rs.59,53,440/- which was bogus. Therefore, according to the AO, he show caused the assessee as to why the said purchases be disallowed. Pursuant to such notice, the AO acknowledges that assessee filed the following documents found placed from page no. 39 of PB to establish the genuineness of the purchases from M/s. Mohit Enterprises viz (i) copies of the bills of the suppliers, (ii) bill wise details of the purchases so made, (iii) details of the corresponding sales of the said items of purchases with the copies of some of relevant sales bills, (iv) copies of the accounts of the concerned parties (v) copies of bank statements evidencing payment to the parties (vi) copy of the audited statement of account for the relevant previous year interalia containing the quantity statement (vii) copy of the closing inventory of diamonds (viii) certified copy of the account of appellant in the books of the suppliers. However, AO did not accept the contention of the assessee that the purchases from M/s. Mohit Enterprises were genuine and concluded that purchases were bogus and disallowed the entire purchases to the tune of Rs.59,53,440/- u/s 69C of the Act by observing as under: - 3 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. “(i) The income tax Department has conducted search & seizure action in the case of the Group concerns of Shri Bhanwarlal Jain and conclusively proved that these parties are engaged in the business of providing accommodation entries only, as can be seen from the discussions in the preceding paragraphs. The parties are issuing bills without delivering any goods and services.
(ii) Evidently, the assessee had adopted a modus operandi to reduce its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties.
(iii) Thus, in the books of accounts of the assesse, the purchases to the extent made from the above said parties remained unverifiable and hence I arrive at a conclusion that the purchases shown by the assesse in the books of accounts are inflated and bogus purchases are debited to trading account to suppress the true profits to be disclosed to the department.
(iv) The onus was upon the assessee to establish the genuineness of purchases made by the assesse.
(v) Mere filing of evidences in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction fs in doubt. Payment by account payee cheques are not sacrosanct.
(vi) If all the evidences point to the fact that no actual goods were supplied by the above parties, then the argument of assessee that it purchased goods in good faith fs not tenable.”
4 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. 4. Aforesaid action of the AO was challenged by assessee before the Ld. CIT(A) who was pleased to dismiss the same. Aggrieved, the assessee is before us.
5. We have heard both the parties and perused the records. The assessee has set-up the business as retailer of Gold and Diamonds Jewellery in Sep, 2010 onwards. And thus it is the first year of its business. And the assessee inter-alia has purchased gold and diamonds worth of Rs.1.9 crores out of which assessee purchased diamonds worth Rs.59,53,440/- from M/s. Mohit Enterprises, which AO alleges to be bogus, since M/s. Mohit Enterprises was a concern run by Shri Bhawarlal Jain Group a known entry operator. According to the AO, Shri Bhawarlal Jain Group of concerns were involved in providing bogus accommodation bills in lieu of commission which fact has been admitted by Shri Banwarilal during search operation carried out at his premises. Therefore, according to AO, the entire transaction shown by assessee with M/s. Mohit Enterprises was bogus. Therefore, he show caused the assessee as to why the entire purchases from M/s. Mohit Enterprises should not be rejected, and added as income of the assessee. Pursuant to show cause notice, assessee filed to following documents to prove the genuineness of the purchases(i) copies of the bills of the suppliers, (ii) bill wise details of the purchases so made, (iii) details of the corresponding sales of the said items of purchases with the copies of some of relevant sales bills, (iv) copies of the accounts of the concerned parties (v) copies of bank statements evidencing payment to the parties (vi) copy of the audited statement of 5 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. account for the relevant previous year interalia containing the quantity statement (vii) copy of the closing inventory of diamonds (viii) certified copy of the account of appellant in the books of the suppliers. However, the AO rejected the contention, and was of the view that since M/s. Mohit Enterprises was a concern of Shri Banwarilal, and he admitted that he and his concerns were providing only accommodation bills and conducted no actual business. Therefore, AO disbelieved the transaction shown by the assessee with M/s. Mohit Enterprises and disallowed the entire purchases, and added the entire purchases from M/s. Mohit Enterprises to the tune of Rs.59,53,440/-. On appeal, the Ld. CIT(A) confirmed the action of the AO. We do not countenance the action of the Ld. CIT(A) for the main reason that AO has not disturbed the sales of diamonds while he disallowed the entire purchases from M/s. Mohit Enterprises. Secondly, he didn’t reject the books and thirdly in this year under consideration, the assessee out of the purchases from M/s. Mohit Enterprises has shown to have sold diamonds purchase from M/s Mohit Enterprises only to the tune of Rs.6,65,000/- and offered gross profit to the tune of Rs.3.95%. And in the books, the balance diamond was shown as closing stock, and further, the assessee produced evidence to substantiate that balance diamonds (Rs.59,53,440 – Rs.6,65,000/-) Rs. 52,88,440/- were sold in the subsequent assessment year i.e AY. 2014-15, wherein assessee has shown gross profit of 17.59%. Therefore, the action of the AO/Ld. CIT(A) to disallow the entire purchases of diamonds when considered with the contemporaneous relevant evidences cannot be countenanced. Since we have noted that purchases of diamonds have been proved by 6 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. primary evidences (supra), and the payments of purchase of diamonds have been made through banking channel albeit in the next year, which fact is seen from the bank statement, (refer page no. 43-45 of PB) as well as the affidavit filed by proprietor of M/s. Mohit Enterprises (placed at page no. 46 and 47 read with page no. 62 to 66 of PB wherein copy of Indus-Ind Bank statement is found placed). Therefore, the only presumption that can be drawn in the foregoing facts are that assessee has purchased the diamonds from the grey market and has utilized services of M/s. Mohit Enterprises for providing bills and has sold it. In such a scenario, we are of the opinion that only profit embedded in such sale should only be brought to tax. And for that we rely on the decision of the Hon’ble Bombay High Court in the case of PCIT Vs. Nitin Ramdeoji Lohia (2022) 145 taxmann.com 546 (Bom) wherein the Hon’ble Bombay High Court held as under: - “Both these appeals under section 260A of the Income-tax Act, 1961 ("the Act") challenge the order dated 05th July, 2017, passed by the Income-tax Appellate Tribunal, Bench "B", Pune ("ITAT") in Income-tax Appeal No. 1408/PUN/2015 relevant to the assessment year 2010-11 and Income-tax Appeal No. 1409/PUN/2015 relevant to the assessment year 2011-12, respectively, whereby the appeals filed by the Revenue have been dismissed.
The facts and issues arising in both these appeals are identical, however, for the sake of deciding the issue, reference is being made to the facts in of 2018. 7 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd.
The following questions of law have been proposed for our consideration: a. Whether in the facts and circumstances of the case and in law, the ITAT was justified in directing the A.O. to delete the addition made on account of bogus purchase ignoring the fact that the addition was made by the A.O. on the basis of credible information from the Sales Tax Department and on the fact that the assessee did not substantiate/confirm the veracity of the impugned purchases in the assessment proceedings? b. Whether in the facts and circumstances of the case, the ITAT was justified in directing the A.O. to delete the addition made on account of bogus purchase ignoring the fact that the absolute burden of proof to substantiate/confirm the veracity of the impugned purchases was cast on the assessee, which was not discharged by cogent, relevant and reliable evidence, during the course of the assessment proceedings? c. Whether in the facts and circumstances of the case and in law, the ITAT was justified in directing the A.O. to delete the addition made on account of bogus purchase ignoring the fact that the parties from whom the impugned purchases were claimed to be made were not available on their given addresses and further the assessee did not produce such parties before the A.O. to confirm the veracity of the impugned purchases? d. Whether in the facts and circumstances of the case, and in view of the Hon'ble Supreme Court's judgment dated 16-1-2017 in the case of N.K. Proteins Ltd. Vs DCIT [2017] 84 taxmann.com 195 (SC), it was incumbent on 8 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd.
the ITAT to restrict the addition made on account of 'Bogus Purchases', it having once come to a categorical finding that such total amount of addition made represented alleged purchases from bogus suppliers? 4. Briefly stated the material facts are as under: The Respondent assessee is engaged in the business of trading in industrial oil and transport services. A return of income was filed by the assessee declaring a total income at Rs. 4,47,970/-. The Sales Tax Department of the Government of Maharashtra provided information to the Assessing Officer (A.O.) giving names, addresses and details of persons, who had provided entries of bogus purchases. The said information also contained details of beneficiaries of such bogus bills. Based upon the information so received, the A.O. issued notice under section 148 of the Act, followed by the statutory notices under section 143(2) and 142(1) of the Act and the order of assessment under section 143(3) r/w section 147 of the Act was passed on 30th March, 2015 and total income assessed at Rs. 1,46,82,548/-. The A.O. thus made an addition of Rs. 1,42,34,578/- on account of alleged bogus purchases from Hawala dealers/parties.
An appeal was preferred by the assessee before the CIT (Appeals). The appeal was allowed inter alia on the ground that the A.O. having not disputed the sales, it was not a case of bogus purchases and that it was at best a case of inflated purchases. The CIT (Appeals), however, was of the opinion that the gross profit shown by the assessee at 0.69% was very low in that particular kind of trade and, therefore, estimated the gross profit at 5% and 9 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. further directed the A.O. to make an addition in the gross profit ratio and delete the balance addition made.
Both the Revenue as also the assessee preferred appeals against the order passed by the CIT (Appeals), whereas the Revenue in its appeal challenged the deletion of Rs. 2.45 crores on account of alleged bogus purchases, the assessee questioned the order to the extent the gross profit rate was calculated at 5% as against 0.69% declared by the assessee, which had resulted in an addition of Rs. 10,59,974/-. The Tribunal dismissed the appeal filed by the Revenue and allowed the appeal preferred by the assessee. It was held that the case of the Revenue was based on the investigation carried out by the Sales Tax Department only and that no cross- examination of the persons, whose names had figured in the list so prepared by the Sales Tax Department, was allowed. It was held that the A.O. had failed to complete the investigation in the case and that the affidavits and the confirmation letters fled by the assessee from three dealers from whom it had made purchases, were not inquired into at all and that the assessee had discharged the onus of proving the factum of making purchases from the respective parties and that there was no contrary evidence brought on record by the A.O. in that regard. It, therefore, while allowing the appeal of the assessee, directed the A.O. to delete the addition on account of bogus purchases.
From the above facts it is thus clear that the CIT (Appeals) partially allowed the appeal of the assessee on the ground that the A.O. had not disputed the sales and, therefore, this was not a case of bogus purchases, inasmuch as if the purchase was bogus, it would not be possible for assessee to complete the transaction by 10 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. way of sale, unless it could be shown from the record that the corresponding sale was also a sham transaction.
We are in agreement with the view expressed by the CIT (Appeals) that, if the purchases are bogus, it would be impossible for the assessee to complete the business transaction and that if the purchase is bogus, the corresponding sale also must be bogus or else the transaction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. That view has been upheld by the Tribunal in principal while dismissing the appeal of the Revenue. In view of the above, we are of the opinion that the questions of law proposed as (a), (b), and (c) in the appeal cannot be said to be substantial questions of law.
Insofar as the question of law framed as (d) is concerned, we find that the Tribunal has not addressed the issue of adopting the gross profit rate of 5% on the alleged Hawala purchase of Rs. 2.45 crores as against the rate of 0.69% declared by the assessee, despite the fact that the CIT (Appeals) had specifically gone into that question in its order dated 18th August, 2015 and had directed the A.O. to make 5% addition in the gross profit ratio, while deleting the balance addition.
We, therefore, deem it appropriate to remand the matter back to the Tribunal only to the limited extent of going into that issue. Parties to appear before the Tribunal on 05th December, 2022 and orders to be passed thereupon, preferably within a period of three months thereafter.
11 A.Y. 2013-14 AS Motiwala Jewellers Pvt. Ltd. The decision taken above in of 2018 shall apply mutatis and mutandis to ITA No. 750 of 2018. In the result, both the appeals are, accordingly, disposed of.”
6. In the light of the aforesaid discussion, we find force in the contention of the assessee that the Ld. CIT(A) erred in sustaining the 100% disallowance of purchases from M/s. Mohit Enterprises and thus, erred in confirming the addition of Rs.59,53,440/- u/s 69C of the Act. Therefore, as per the ratio laid down by the Hon’ble High Court, profit embedded in the transaction only need to be brought to tax particularly when the tax authorities have not disturbed the sales declared by the assessee in this year as well as balance shown as closing stock. And since we have noted that the assessee had itself offered gross profit of 3.95% this year and 17.59% in AY. 2014-15, therefore, in this year only profit element of gross profit @ 2% of the purchases from M/s. Mohit Enterprises would be just and reasonable and it is ordered accordingly.