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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of National Faceless Appeal Centre, Delhi /CIT(A) passed u/s 143(3) r.w.s 254 and U/sec 250 of the Act. The assessee has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming estimate of additional profit at 8% of total alleged bogus purchases.
Suraj Exports, Mumbai. - 2 -
2. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not appreciating the fact that the Assessing Officer himself has confirmed the goods purchased were subsequently exported.
3. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not appreciating the fact that since the goods purchased have been duly exported hence there is clear trail of the movement of the same out of custom boundaries and hence, the genuineness of purchases cannot be denied.
4 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not appreciating the fact that, the action of the ld. Assessing Officer in completing the assessment de-novo is bad in law as the same is utter disregards of the directions of the Hon'ble ITAT.
On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in upholding the assessment which is bad in law, by not appreciating the fact that, the ld. Assessing Officer had completed the assessment, without examining the affidavits filed by the appellant and without examining any material available on records as directed by the Hon'ble ITAT.
On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not following the binding judicial precedents of jurisdictional Tribunal and High Court which is in violation of judicial system of our country.
7. The appellant prays that the addition be deleted necessary.
Suraj Exports, Mumbai. - 3 -
The brief facts of the case are that, the assessee is engaged in the business of trading in diamonds. The assessee has filed the return of income for the A.Y 2007-08 on 11.10.2007 disclosing a total income of Rs.53,24,567/- and the return of income was processed u/s 143(1) of the Act. A Search and survey action conducted in the case of Shri Bhanwarlal Jain Group. The Assessing Officer (A.O) has received the information from the DGIT(Inv), Mumbai that the assessee has obtained bogus purchases bills from three parties M/s. Little Diam, M/s Daksh Diamonds and M/s. A2 Jewels all aggregating to Rs.3,79,50,581/- and is a beneficiary. The A.O has reason to believe that the income has escaped assessment and issued notice u/sec 148 of the Act. The assessee has filed the objections and the objections were disposed off. Subsequently the notice u/sec 143(2) and U/sec142(1) of the Act are issued. The AO has dealt exhaustively on the details, facts and modus operandi of entry provider in obtaining bogus purchase bills and estimated GP/margin@8% of Rs.3,79,50,581/- which works out to Rs.30,36,046/- and assessed the total income of Rs.83,60,610/- and Suraj Exports, Mumbai. - 4 - passed the order u/s 143(3) r.w.s 147 of the Act dated 24.03.2015.
Subsequently, Aggrieved by the assessement order, the assessee preferred an appeal before the CIT(A) and the CIT(A) has confirmed the action of the A.O. On further appeal, The Hon’ble Tribunal in ITA.No 7377/Mum/2016 vide order dated 18.08.2017 has restored the issue to the file of the AO observing that the affidavit filed by the parties were not before the Assessing officer and the issue needs to be re examined by the A.O in light of the affidavit filed by the parties and also details filed by the assessee justifying the purchases. Whereas the AO as per the directions of the Hon’ble Tribunal, has issued notice and the assessee has filed the details substantiating the claim of purchases with affidavit, purchase ledger accounts and various information substantiating the genuineness of claim. But the AO was not satisfied with the explanations and information submitted and made addition of the unapproved purchases of Rs.3,79,50,581/- and assessed the total income of Rs.4,32,75,150/- and Suraj Exports, Mumbai. - 5 - passed the order u/s 143(3) r.w.s 254 of the Act dated 24.12.2018.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the A.O and restricted the disallowance @8% of the unapproved purchases and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in estimating the profit element @8%,which is above the bench mark of the business/industry/BAP and whereas the actual profit range in diamond trading is between the 1% to 3%. The Ld. AR substantiated the submissions with the judicial decisions and the paper book and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue envisaged by the Ld.AR that the CIT(A)has Suraj Exports, Mumbai. - 6 - erred in not considering the facts that the profit margin in diamond business is between 1% to 3%. The Ld.AR explained that, the assessee has made purchases from three parties M/s. Little Diam, M/s Daksh Diamonds and M/s. A2 Jewels all aggregating to Rs.3,79,50,581/- and the goods are exported out of India. The assessee has filed the details of purchases along with the evidences but the A.O has doubted the purchase transactions and disallowed the purchases as non genuine and whereas on appeal to CIT(A), the appellate authority has restricted the addition to the extent @8%of unapproved purchases. The contentions of the Ld. AR that the assessee has made purchases from these concerns through proper banking channel and maintained supporting evidences of purchases and export purposes. The Ld.AR highlighted on the statements of the trade creditors/ suppliers and demonstrated the purchase bills placed at page 34 to 48 of the paper book. Further the copies of sales bills and documents evidencing exports of diamonds placed at page 49 to 193 of the paper book. The Ld. AR has highlighted on the affidavit filed by the three suppliers in respect of Suraj Exports, Mumbai. - 7 - supply of goods to the assessee placed at page 199 to 204 of the paper book. The assessee has maintained the stock register in support of the purchase & sale of transactions.
The Ld.AR submitted that the assessee has purchased the goods for the purpose of export and there is clear movement of goods from out of the custom boundaries and the genuineness of purchases cannot be doubted and the estimating profit @8% is on higher side and relied on the judicial decisions. The Hon’ble High Court of Gujarat in the case of Pr.CIT Vs. Shah Virchand Govindji Jewellers Pvt Ltd.(418 ITR 472)(Gujarat) has observed at Para 4.4 to 4.9 of the decision as under:
“4.4 On the other hand, Mr. J.P. Shah, learned counsel for the respondent, submitted that after duly considering the facts of the case, the Tribunal has restricted the addition to 3%. It was submitted that the percentage of addition is a matter of estimation, which does not give rise to any question of law. It was also submitted that it is an admitted position that the respondent assessee has shown sale of diamond jewellery manufactured from diamonds stated to have been purchased from M/s. Amit Diamonds and M/s. A2 Jewels. The Assessing Officer has found that M/s. A2 Jewels and M/s. Amit Diamonds were bogus entities. However, as rightly held by the Suraj Exports, Mumbai. - 8 -
Commissioner (Appeals), though the two entities were found to be bogus, the assessee had, in fact, purchased diamonds which were used for the purpose of making diamond jewellery and therefore, the sale of such diamond jewellery has been accepted by the Assessing Officer. Under the circumstances, the Commissioner (Appeals) was justified in not disallowing the entire purchase and in restricting the same to 3% of the amount of purchases and the Tribunal justified in confirming the same. was wholly
4.5 This court in N.K. Industries v. Deputy Commissioner of Income-tax (supra) had relied upon its earlier decision in the case of Vijay Proteins Ltd. v. Commissioner of Income Tax, [2015] 58 taxmann.com 44 (Gujarat), wherein it has been held thus:
"It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased, but such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price through fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price."
4.6 This court in Sanjay Oilcake Industries v. Commissioner of Income-tax, 2009 (316) ITR 274, on which reliance has been placed in the case of Vijay Proteins Ltd. v. Commissioner of Income-tax (supra), has recorded the findings of the Tribunal, wherein the Tribunal had concurred with the action of the Commissioner of Income-tax (Appeals) of confirming 25% Suraj Exports, Mumbai. - 9 - of the amount claimed as fair and reasonable. The Tribunal found that the parties from whom the purchases were shown to have been made were perhaps a creation of the itself for the purpose of banking purchases into the books of account because the purchases with bills were not feasible. Thus, the said parties become conduit pipes between the assessee firm and the sellers of raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. The Tribunal, accordingly, held that an addition of 25% for extra price paid by the assessee, over and above the prevalent price, is fair and reasonable and accordingly, confirmed the findings of the Commissioner of Income-tax (Appeals).
4.7 This court concurred with the findings of the Commissioner (Appeals) and the Tribunal and held that the estimate made by the two appellate authorities did not warrant interference as, even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law.
4.8 This court is in agreement with the concurrent findings recorded by the Tribunal and the Commissioner (Appeals), namely, that the assessee had shown purchases as well as sales. If the sales were accepted, the Assessing Officer could not have rejected the purchases. Once the purchases are accepted, the difference between the inflated and actual price of purchases would be required to be disallowed and as to what would be the extent of difference would be a matter of estimate.
4.9 In the present case, the Commissioner (Appeals) has estimated this difference at 3% of the bogus purchases and the Tribunal has accepted the same. As has been Suraj Exports, Mumbai. - 10 - held by this court in Sanjay Oilcake Industries v. Commissioner of Income-tax (supra), whether an estimate should be at a particular sum or at a different sum can never be an issue of law. Under the circumstances, this ground of appeal also does not give rise to a question of law, much less, a substantial question of law”.
8. We considering the overall facts, circumstances, judicial decisions and to meet the ends of justice restrict the addition @ 3% as against 8%. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to estimate the income@3% on unapproved/ bogus purchases and partly allow the grounds of appeal in favour of the assesse.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 10.10.2023.