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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: SHRI PAVAN KUMAR GADALE & SHRI S RIFAUR RAHMAN
आदेश / ORDER
PER PAVAN KUMAR GADALE - JM:
This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC)/CIT(A), Delhi passed u/s 250 of the Act. The assessee has raised the following grounds of appeal:
1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred treating the genuine purchase as non-genuine unsecured loan.
On the facts and circumstances of the case and law, the Ld CIT(A) erred in confirming 100% disallowance of Purchase amount Rs. 2170692/- on wrong facts that amount is in nature of unsecured loan and appellant failed to prove the creditworthiness of lender. 3On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming charging interest under section 234B of Income Tax Act, 1961. 4On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty provision under section 271(1)(c) of Income Tax Act, 1961. 5. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal
on or before the date of hearing.
2. The brief facts of the case that the assessee is engaged in the business as exporter, importer and manufacturer of diamonds. The assessee has filed the return of income for the A.Y 2007-08 on 31.07.2007 disclosing a total income of Rs. 11,726/- and the return of income was processed u/s of the 143(1) of the Act. Subsequently the Assessing Officer (AO) has issued notice u/s148 of the Act and the reasons for reopening of the assessment are provided to the assesse. Further the AO has issued notice u/s 143(2) and 142(1) of the Act. In compliance to the notices, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The AO found that there was search and seizure operation U/sec132 of the Act conducted on Rajendra Jain Group / Sanjay Choudary Group / Dharmichand Jain Group, during the search it was found that the Group was engaged in providing accommodation entries without doing actual business transactions and the assessee is one of the beneficiary.
3. In the F.Y 2006-07, as per the information of DGIT (Inv), the assessee has obtained accommodation entries from various concerns of Rajendra Jain Group and others being (i) AVI Exports of Rs. 16,53,372/- and (ii) Vitrag of Rs. 5,17,320/- total aggregating to Rs. 21,70,692/-.The AO has called for the various information and the assessee has filed the objections in respect of validity of reassessment and were rejected.The A.O. has called for the additional information to substantiate the genuineness of the transactions with the parties. The A.O. has dealt exhaustively on the details, facts and modus operandi of entry providers in obtaining bogus purchase bills, investigation report and statements recorded. Finally, the AO was not satisfied with the explanations and the evidences and treated the transactions of purchases as non genuine and made an addition of Rs.21,70,692/--and assessed the total income of Rs.21,82,418/- and passed the order under Section 143(3) r.w.s. 147 of the Act dated 30-03-2015.
Aggrieved by the order, the assessee has filed an appeal with the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO and the CIT(A) observed that the transactions made by the assessee are in the nature of unsecured loans. Whereas the AO observed that they are non-genuine purchases. Finally the CIT(A) confirmed the addition as unsecured loans and dismissed the assessee appeal. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the ITAT.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the addition as unsecured loans, whereas the assessee has made purchases from the parties and it was alleged as bogus purchases by the revenue.The Ld. AR emphasized that the transactions entered by the assesse are disallowed by the revenue authorities without any proper inquires though the assesse has substantiated with material evidences/information before the lower authorities on the disputed issues and supported the submissions with the factual paper book and judicial decisions 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 disputed issue as envisaged by the Ld. AR that the CIT(A) erred in treating the purchases made by the assessee as unsecured loans from the parties and the CIT(A) also erred in observing that these unsecured loans are from the parties who are providing accommodation entries. But the fact remains that, the AO has issued notice u/s 148 of the Act on the basis of the information that the assessee has obtained bogus purchase bills and hence the CIT(A) observations as unsecured loans are not tenable. Since the assessee has indulged in bogus purchases transactions to save the taxes and profit element embedded has to be considered. The Ld.AR submitted that the profit margin/element in the diamond business range between 1% to 3% and both the revenue authorities has over looked the factual aspects of the purchase transactions substantiated with material evidences. The Ld. AR relied on the judicial decisions of the coordinate bench of the Honble Tribunal as under: . 1. & 3127/Mum/2022, Ankit Diamonds Vs. DCIT dated 20-04-2023. 2. CO Nos. 123 to 126/Mum/2021, DCIT Vs. M/s DECENT Diamonds.dated 28-02-2023 3. ITA Nos. 1551 & 1552/Mum/2020, M/s. Star Brillian dated 12-07-2022.
7. We find the Coordinate Bench of the Honble Tribunal in the case of Ankit Diamonds Vs. DCIT in ITA Nos. 3125 & 3127/Mum/2022 dated 20-04-2023 has dealt on the similar and identical issue and granted the relief observing at Page 5 Para 9 to12 read as under: 9. Considered the rival submissions and material placed on record and perused the orders of the authorities below. It is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. We agree with the view of the lower authorities that there should be an estimation of profit element from these purchases and should be estimated reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, especially in the absence of any confirmations from them.
10. On similar facts, the Coordinate Bench in the case of M/s. Star Brillian v. ITO (supra) estimated the profit percentage embedded in the value of disputed purchases @2% and observed as under: - “3.1. We have heard rival submissions and perused the materials available on record. The assessee is an importer, exporter and manufacturer of diamonds and dealer in diamonds, precious stones and jewellery. During the course of assessment proceedings, the assessee produced the books of accounts and records containing details of purchases, sales, bank statements and creditors before the ld. AO. The confirmation from all the creditors were called for which were also duly filed before the ld. AO. The ld. AO observed that assessee had made certain purchases from certain parties belonging to Shri Rajendra Jain group and that during the course of search conducted in the case of Shri Rajendra Jain Group on 03/10/2013, it revealed that certain parties were indulged in providing accommodation entries of purchases at the behest of Shri Rajendra Jain group. Since, the assessee had made certain purchases from those parties, the ld. AO proceeded to examine the veracity of the purchases made thereon. It is not in dispute that assessee had indeed made payments for those purchases to the concerned suppliers by account payee cheques. It is not in dispute that assessee had furnished the details of corresponding sales made out of disputed purchases by producing the relevant sale invoices, ledger copy of the parties, bank statement showing payments made through account payee cheques, stock register, copy of affidavits of persons confirming the transactions with the assessee, confirmation from parties confirming sales made to assessee alongwith their copy of ITR, their bank statements, PAN, their affidavit confirming the genuineness of transactions etc., Despite all these facts, the ld. AO observed that the purchases made by the assessee were not proved beyond reasonable doubt as the suppliers belong to Shri Rajendra Jain group. Accordingly, the ld. AO proceeded to estimate the profit element embedded in the value of such disputed purchases at 5% and brought the same to tax in both the years under consideration. This profit percentage was reduced to 3% by the ld. CIT(A) for both the years. It is only an estimation of profit that had been made by both the lower authorities in the instant case. The report of the task group for diamond sector submitted to Department of Commerce suggested that the net profit that could be derived in the diamond manufacturing ranges from 1.5% to 4.5% and in trading activity thereof, the profitability range is 1% to 3%. Considering the same, we deem it fit to estimate the profit percentage embedded in the value of disputed purchases @2% which, in our considered opinion, would meet the ends of justice. Accordingly, the grounds raised
by the assessee in this regard for both the years are partly allowed.”
11. Respectfully following the above said decision, and also taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e. manufacturing, trading in diamond, it would be justified if the profit element embedded in the disputed purchases are estimated at 2%. Accordingly, we direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 2% for both the Assessment Years i.e., A.Y. 2009-10 and A.Y. 2011-12 and restrict the disallowance of purchases to 2% and compute the income accordingly.
12. In the result, appeals filed by the assessee are partly allowed.
8. We find the contentions of the Ld.AR are realistic and duly supported by the material evidence and judicial decisions on the estimation of profit element. We considering average industry rate and the Vat component embed in the transactions, facts, judicial decisions and to meet the ends of justice restrict the addition @2% of the purchase transactions. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to estimate the income@2% on unapproved/ bogus purchases and partly allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is partly allowed.