DY.COMMISSIONER OF INCOME TAX 19(3), MUMBAI vs. SURAJ EXPORTS, MUMBAI

This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax/NFAC, Delhi dated 20.02.2023 for assessment year 2007-08.

The main grievance of the revenue is against the action of the Ld. CIT(A) deleting the entire addition made by AO (purchases to the tune of Rs.3,79,50,581/-) and restricting it to 8% N.P of such purchases. 3. Brief facts are that the assessee had filed its return of income on 11.10.2007 declaring total income at Rs.53,24,567/-. Later, the case of the assessee was reopened on the basis of information received from the DGIT(Inv.), Mumbai that during the search and survey action conducted in this case of Shri Bhanwarlal Jain & Family on 03.10.2013, the Investigation Wing came to know that Shri Bhanwarlal Jain controlled many companies/Firm/ proprietory A.Y. 2007-08 Suraj Exports concerns. According to the AO, the investigation wing was able to find out from the so called directors/partners/proprietors (of concerns controlled by Shri Bhanwarlal Jain) who all admitted that they were name-sake/dummy-directors/partners/proprietors and are merely employees of Shri Bhanwarlal Jain and Family. Thus, according to the AO, those name lending directors/partners and proprietors were acting in concert with the direction of Shri Bhanwarlal Jain and Family who had real control and management of their concerns. The AO after taking note of information that the assessee had made purchase of Rs.3,79,50,581/- from these concerns of Shri Bhanwarlal Jain was pleased to add 8% of bogus purchases which comes to Rs.30,36,046/- and assessed the income of the assessee at Rs.83,60,613/- by assessment order dated 24.03.2015 (First round) u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter “the Act”). Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)-30, Mumbai who being satisfied that the purchases made by the assessee have been subsequently exported to the buyers out of India, and the assessee has maintained detailed stock tally of the same, and after considering the report of the Task Force for Benign Procedure of Assessment (BAP) and after appreciating the fact that the gross profit of the assessee is 10.78% and the Net Profit is 8.29%. [being already higher than the 8% Net Profit as stipulated under the Benign Assessment Procedure (BAP)] directed AO to restrict the addition by estimating an additional margin of 3% on these purchases instead of 8%. Aggrieved, the assessee preferred an appeal before the Tribunal, and the Tribunal has A.Y. 2007-08 Suraj Exports set aside the order of the Ld. CIT(A) and restored the matter back to the file of the AO by observing as under: - “.....The assessee has filed paper book containing all the details filed before the AO. The assessee also filed copies of affidavit filed by the three parties. Though these affidavits are not filed before the AO, the same are filed before the CIT (A). We have gone through the affidavit filed by the parties. The three parties in their affidavit clearly stated that they have supplied materials to the assessee and also payment has been received by cheques. We further observe that the assessee has filed month-wise stock statements, purchases made from the said parties and corresponding sales. The AO has not made any adverse comments on the books of accounts or stock statements filed by the assessee. The AO only on the point that the said parties are paper concerns/dummy concerns operated and controlled by Shri Bhanwarilal Jam and also the persons incharge of a concern have had in admitted that they are put in position by Shri Bhanwarial Jain. Therefore, we are of the view that the AO was incorrect in holding that the purchase made from the above parties are bogus in nature, despite the assessee has furnished necessary evidences to prove the purchases. The assessee also produced affidavit from the parties wherein they have clearly stated that they have supplied goods to the assessee and payment against supplies have been received by cheque. Admittedly. affidavit filed by the parties are not before the AO, therefore, we are of the view that the issue needs to be re- examined by the AO in the light of the affidavit filed by the parties and also details filed by the assessee justifying the purchases. Hence, we set aside the issue to the file of the AO and direct him to examine the issue in the light of the A.Y. 2007-08 Suraj Exports details filed by the assessee after giving an opportunity of hearing to the assessee Order of the ITAT is annexed herewith as "Exhibit -3". 4. Pursuant to the Tribunal order dated 18.08.2017, the AO noted in the assessment order (in the second round) that the assessee had purchased goods from the following concerns controlled by Shri Bhanwarlal Jain and Family as under: - SL No. Name of the hawala Parties Bill amount (Rs.) 1 A2 Jewels 756819 2 Daksh Diamonds 11440864 3 Little Diamonds 25752898 Total 37950581 And was of the opinion that transaction was only on papers and no goods have actually exchanged hands; and since the assessee failed to prove the genuineness of the purchases made by assessee, the said transaction according to him cannot be held to be genuine. According to him, the assessee in order to prove the genuineness of the purchases has taken the help of book-entry and documents prepared by itself, which according to AO was self serving and was of the opinion that mere entries in books of account and documents are only unilateral act of the assessee, which cannot be taken as conclusive evidence when adverse evidences collected during search/survey operation are on record which suggest that the sellers are bogus. And therefore, according to the AO, mere documentation in the books or bank account entries cannot be accepted; and since the assessee has claimed expenditure on account of purchases, the assessee was bound to prove the genuineness of the purchase which assessee failed to do, so he was pleased to add the entire purchases of Rs.3,79,50,581/- as bogus purchases. Aggrieved, the assessee preferred an appeal before the Ld. A.Y. 2007-08 Suraj Exports CIT(A) who was pleased to restrict the addition to 8% of N.P of the said purchases. Aggrieved, the revenue is before us. 5. We have heard the Ld. DR and notice that despite notice dated 09.06.2023 (RPAD) fixing the appeal on this day, none appeared on behalf of the assessee. Since this is the second round of appeal, and note that the Ld. CIT(A) has taken in to account the fact that the assessee had filed before him ledger account of three (3) parties as well as its own balance-sheet and profit and loss account and relevant case laws, as well as copy of bank-statement from which he noted that purchases were made through banking channels, so according to Ld CIT(A), purchases cannot be denied, and therefore, restricted the addition @ 8% of N.P of such purchases. And thus partly allowed the appeal. The Ld CIT(A) confirmed partly the addition because (a) there was no one-to-one matching with the amounts purchased, (b) ledger accounts are handwritten i.e. manual ledgers which according to him, does not inspire confidence as they are not signed nor bear the stamp of audit. In the light of the aforesaid facts according to him, the estimation of 8% of the net profit on the alleged bogus purchases would meet the interest of justice. And for doing that he has relied on the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs. Shah VirchandGovanji Jewellers Pvt. Ltd. (2019) 418 ITR 472 wherein their Lordship has held as under: - “PCIT Vs. ShahVirchandGovani Jewellers Pvt. Ltd. (2019) 418 ITR 472 (Guj) (HC) S. 69C: Unexplained expenditure-income from undisclosed sources bogus purchases-Bhanvarlal Jain group-Hawala concern A.Y. 2007-08 Suraj Exports addition cannot be made of entire purchase based on the report of Investigation wing- when sales are accepted purchases cannot be rejected-Estimation of profit of 3% of bogus purchases- Held to be justified- Appeal of revenue is dismissed-No question of Law. (S. 260A). The responded is in business in trading and manufacturing of silver, gold, diamonds stones and Jewellery. The AO on the basis of report of investigation wing Mumbai where in two purchases were made from Amit Diamonds which belongs to Bhanvarlal Jain group being a hawala concern, made addition of entire purchases. CIT(A) deleted the addition and confirmed 3% of amount of purchases. Tribunal affirmed the order of the CIT(A). On appeal by the revenue, dismissing the appeal of the revenue the Court held that the CIT(A) had found 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 were accepted, the difference between the inflated and actual price of purchases would be required to be disallowed and what would be the extent of difference would be a matter of estimate. The Commissioner (Appeals) had estimated this difference at 3 per cent. of the bogus purchases and the Tribunal had accepted it. Whether an estimate should be at a particular sum or at a different sum can never be an issue of law. (Followed Sanjay Oilcake Industries v CIT ( 2009) 316 ITR 274 (Guj.)(HC) Referred N.K. Industries Ltd. v Dy CIT ( 2017) 292 CTR 354/ 8 ITR-OL 336 (Guj.)(HC), Vijay Proteins Ltd v. CIT (2015) 58 taxmann.com 44 (Guj.) (HC) (AY. 2011-12).”