DCIT CENTRAL CIRCLE-2(3), MUMBAI vs. M/S ASIAN STAR COMPANY LTD, MUMBAI
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
PER PRASHANT MAHARISHI, AM:
This appeal is filed by The Deputy Commissioner Of Income Tax, Central Circle 2 (3, Mumbai (The Learned AO) against the appellate order dated 1/8/2022 passed by the Commissioner Of Income Tax (Appeals) – 48, Mumbai (The Learned CIT – A) wherein the addition made by the learned assessing officer of ₹ 116,624,231/– on account of accommodation entries and consequent commission of ₹ 8,315,211 was deleted.
“1. Whether on the facts and circumstances of the case and in law, the learned CIT (A), has erred in deleting the disallowance of the suspected bogus purchases.
Whether on the facts and circumstances of the case and in law, the Ld. CIT (A), has erred in not appreciating the reliance was placed on the charge sheet filed by the Enforcement Directorate regards to bogus purchases made by the assessee from various parties without supply of actual goods.
Whether on the facts and circumstances of the case and in law, the Ld. CIT (A), has erred in deleting the disallowance of commission as alleged to bogus.”
Assessee is a company engaged in the business of trading, manufacturing, import and export of diamonds. It filed its return of income on 31/11/2012 declaring a total income of ₹ 378,440,970/–. Assessment under section 143 (3) of the act was made on 30/3/2016 determining total income of the assessee at ₹ 397,039,090.
Based on the above information, notice under section 148 of the income tax act was issued on 28/3/2019 after recording the reasons and obtaining approval from The Principal Commissioner of Income Tax –
In response to the notice under section 148, the assessee filed its return of income on 4/4/2019 declaring a total income of ₹ 378,440,970/–. Reasons recorded were communicated to the assessee on 10/4/2019. The notice under section 143 (2) was issued to the assessee on 29/8/2019. The assessee filed objection, which were also disposed of on 30/9/2019.
The learned assessing officer during the course of assessment proceedings issued a notice on 18/10/2019 to furnish the necessary details with respect to the transactions with RA distributors private limited and Ramshyam Exports private limited.
With respect to the commission expenditure of 4 parties which were not taxable at the addresses given in the return of income, assessee submitted that parties are genuine, they have been providing the services of mediation between the buyers and seller, facilitation in smooth transaction, assortment and evaluation of material and timely follow-up for procurement of material and its payment itself. The payments have been made through cheques, commission expenses were also in earlier years are accepted, the admission made by the directors of the company have been subsequently withdrawn. Assessee submitted the copy of Ledger account, copy of the bills invoices debit notes and also the bank statement to show the payment. The learned AO issued notices under section 133 (6) of the act to the various parties calling for information. In response to that notice one party submitted reply, however other three parties did not respond. Accordingly, the learned AO disallowed the payment of commission of ₹ 8,315,201/– to all the 4 parties.
Assessee aggrieved with assessment order preferred appeal before the learned CIT – A, who passed a consolidated order on 1/8/2022 four assessment year 2012 – 13, 2014 – 15, 2017 – 18, 2018 – 19 and 2019 – 20. Though the issue in other assessment year from the impugned assessment year i.e. 2012 – 13. Assessee challenged the reopening of the assessment, the learned CIT – A dismissed this ground of appeal. Against the addition of ₹ 116,624,231 on account of bogus purchases, he held that assessee has purchased from nine exempt private limited, MD of show Distributors private limited and with the exempt private limited whether they can be termed as bogus entities whose name A. The fourth or sixth layer only based on said transaction flowing down, crossing 4 - 6 layers or more layers and ultimately lending to the account of Ram Shyam exports private limited company. He found that neither of these companies can be said to be bogus entities providing accommodation entry and not the payment to these three persons/companies will resume the colour of non-
With respect to the commission expenditure disallowed of ₹ 8,315,211, the learned CIT – A though notices under section 133 (6) of the act were issued to the four parties but only one party furnish the reply and no information was received from the other three parties, but the assessee has submitted the debit notes, details of tax deducted at source, bank statements and financial statements along with the income tax return of those parties. With respect to the statement of the directors, he held that the statement was recorded under section 132 of the act in earlier research in case of the appellant in the year 2010 and assessment was completed under section 153A of the act wherein all the transaction of the appellant which above-mentioned four companies were held to be genuine. He further noted that in all
With respect to the commission expenditure, it was submitted that learned assessing officer has clearly
The learned authorized representative referred to the order passed by the learned CIT – A and submitted that the one-to-one mapping of purchases are shown at page number 123 – 124 of the paper book he submitted that the purchases from RA distributors private limited and also purchases from Nayan exempt private limited, read the exempt private limited and MB offshore private limited with respect to the sale. He submitted that the learned CIT – A has deleted the addition on the merit and on the alternative ground of cross profit. With respect to mapping of the purchases with sale, he referred that the purchases are made in the month of February whereas the sales are also shown by way of an export in the month of March. It was the claim that the purchases have gone into the sale is undisputed and the learned assessing officer has also not
On the query by the bench, the assessee submitted the details of the process of the purchases as well as the gross profit working of the assessee. It was submitted that the gross profit margin of the trading segment of the bogus purchases was computed by the learned CIT – A at 6.81% whereas the cross profit margin of the other genuine purchase transaction and its corresponding sale is 5.55% assessee submitted the carrot wise quantitative details of the alleged bogus purchases and the other purchases not disputed. He further showed the invoices of the other parties which are accepted by the learned assessing officer and the invoices of the alleged bogus parties where the description is similar, therefore, he submitted that it is not the practice to mention the number of diamonds involved in the purchases but it is only sold in carrats.
It was also the claim of the learned authorized representative that in case of the parties, which are alleged to be bogus, the learned assessing Officer has accepted the purchases from the same parties partly. Accordingly his claim was that it is not the only one reason by which the learned CIT – A is deleted the addition but he has applied several test
We have carefully considered the rival contention and perused the orders of the lower authorities. Merely there are two editions contested by the revenue. 1 addition on account of bogus purchases of ₹ 11.66 crores on account of accommodation entries, 2 addition on account of commission expenditure of ₹ 8,315,211/–.
The learned CIT – A has decided issue of bogus purchases as under:-
"7.2 It is observed that the AO has made the impugned addition after receiving information from Investigation Wing, Surat in the following manner- 2. In connection with the caption subject, it is to clarify that the 12 Indian Companies are ultimate beneficiaries (mentioned as T2.1 to T2.12 in the report) in the case of Afroz Mohamed Hasanfatta, from where remitted to foreign bank accounts. The Custom Authorities found on verification that the bills of entries were bogus and there was no such import made by these 12 companies related with Afroz Mohamed Hasanfatta as mentioned in the bill of entry. On receipt of the confirmation of bogus import, the Enforcement Directorate conducted investigation and filed a charge sheet against some persons on 18.07.2014 related with Afroz Mohamed Hasanfatta. On verification in the case of 12 companies related with Afroz Mohamed Hasanfatta, it appears that the account of the foreign based entities, wherein funds were funded in guise of import payment from Indian based entities. These companies are proved to be bogus and have disguised fund transferred in form of bogus purchases or bogus loan transactions. The identification of source of fund received by the said 12 entities are mentioned in the interim report forwarded by this office.
M/s. Asian Star Company. Ltd. had transactions with Level 4 entities namely M/s. Nayan Exim Pvt. Ltd. Subsequently, M/s. Nayan Exim Pvt. Ltd, has transferred funds to the above-mentioned company Le. M/s Ram Shyam Exports Pvt. Ltd. On perusal of the report furnished by the agency involved in the analysis of the fund trail, it is found that the transaction between M/s. Asian Star Company Ltd. & M/s. Nayan Exim Pvt. Ltd. had taken place on 29.02.2012 and M/s. Asian Star Company Ltd. transferred the amount mentioned above in the table to the A/c. No. 910020006124302 (this is the A/c of Nayan Exim Pvt. Ltd.) which was subsequently transferred to M/s. Ram Shyam Exports Pvt. Ltd. as described in Para 3 & Para 4 of this letter. 1. M/s. Asian Star Company Ltd. had transactions with Level 6 entities namely M.B. Offshore Distributors Pvt. Ltd. Subsequently, M/s. M.B. Offshore Distributors Pvt. Ltd. has transferred funds to the above-mentioned company Le. M/s Ram Shyam Exports Pvt. Ltd. On perusal of the report furnished by the agency involved in the analysis of the fund trail, it is found that the transaction between M/s. Asian Star Company Ltd. & M.B. Offshore Distributors Pvt. Ltd. had taken place on 29.02.2012 and M/s Asian Star Company Ltd. transferred the amount mentioned above in the table to the A/c No. 910020011061761 (this is the A/c of M/s. M.B. Offshore Distributors Pvt. Ltd.) which was subsequently transferred to M/s. Ram Shyam Exports Pvt. Ltd, as described in Para 3 & Para 4 of this letter. 1. M/s. Asian Star Company Ltd. had transactions with Level 6 entities namely M/s. Riddhi Exim Pvt. Ltd. Subsequently, M/s. Riddhi Exim Pvt. Ltd has transferred funds to the above-mentioned company Le. M/s Ram Shyam Exports Pvt. Ltd. On perusal of the report furnished by the agency involved in the analysis of the
7.7.1 Evidences submitted being disregarded. The evidences that the appellant submitted during the assessment as well as appellate proceedings are- 1. Ledger accounts of the transactions with the purchase parties 2. Purchase invoices 3. Bank Statements of the appellant highlighting the payment to M/s Nayan Exim Pvt Ltd, M/s M B Offshore Distributors Pvt Ltd and M/s Riddhi Exim Pvt Ltd. and 4. One to one mapping of corresponding purchases and sales. 7.7.1.1 Although the AO has acknowledged receipt of these evidences, he has not commented on the merit of these as seen from para 5.7 of the order. He has neither highlighted lacuna in these evidences nor rejected it. His complete silence on the documentary evidence while accepting only the information received from Investigation Wing, Surat is one sided will not give credence to his conclusion. 7.7.2 A no. of Transactions - The Ld. AR, during the appellate proceedings, has also highlighted that the appellant had entered into several other transactions of purchase of goods (cut and polished diamonds), at arm's length price, with M/s Nayan Exim Pvt Ltd, M/s M B Offshore Distributors Pvt Ltd and M/s Riddhi Exim Pvt Ltd. throughout the year, which is in the ordinary course of business of the appellant. It is also submitted that the appellant had regularly made payments for purchases throughout the year and transferred various sums of money to these purchase parties via banking channels. According to the Ld. AR, other than payments for purchases of cut and polished diamonds, the appellant had not transferred any other sum of money to the three concerns.
7.7.2.2 In my considered view, a concern will be non-genuine or bogus in entirety and not partially. As is evident from above, the appellant has purchased 2x to 5x from these concerns than the purchases for which information was received and disallowances were made. What about the balance purchases? The AO has not touched upon it. Once the AO has accepted the balance purchases as genuine, only conclusion that can be drawn is that in the opinion of the AO goods were actually received from these entities. In such circumstances, there is no reason to consider these concerns as non-genuine, paper entity or bogus. 7.7.3 No Connection established. If the purchases treated as bogus, from these entities are further examined, I find that while M/s. Nayan Exim Pvt. Ltd. is a level 4 entity, M/s M B Offshore Distributors Pvt Ltd and M/s Riddhi Exim Pvt Ltd. are level 6 entities. Initial trigger entity (Level 1 entity) was M/s. Ram Shyam Exports Pvt. Ltd., which was investigated by the Custom Authorities. As per the information received, the Custom Authorities found that the bills of entries were bogus and there was no such import made by the companies related with Afroz Mohamed Hasanfatta. M/s. Ram Shyam Exports Pvt. Ltd. was one of such companies. The AO has stated that on receipt of the information of bogus import, the Enforcement Directorate (ED) conducted investigation and filed a charge sheet against some persons on 18.07.2014 related with Afroz Mohamed Hasanfatta.
Thus, Against GP of 6.81% from the above said purchases, the GP as per the audited books of accounts is 6.73% [Rs. 102,92,33,000/Rs. 15,29,08,86,000/- (turnover of FY 2011-12) Page no. 42 of the Paper book]. Once the G.P. related to bogus purchase exceeds the G.P. from genuine purchase, there remains no scope for any disallowance, if the sales figures are not disturbed. 9.0 Respectfully following the above binding decision of the Hon'ble Jurisdictional High Court and discussion made in the preceding paragraphs, the AO is directed to delete the addition of Rs. 11,66,24,231/ made on account of abovesaid purchases made from M/s Nayan Exim Private Limited, M/s M.B. Offshore Distributors Private Limited, M/s Riddhi Exim Private Limited and M/s R.A. Distributors Private Limited. Thus, ground of appeal no. 3 is Allowed."
The learned CIT – A has categorically noted that assessee has submitted the evidences with respect to the Ledger accounts of the transactions with purchase parties, purchase invoices and bank statements of the appellant showing the payment made to the parties. Assessee has also shown the mapping of corresponding purchases and sales. The argument of the learned DR is that one-to-one mapping shown by the assessee is not correct for the reason that in the purchase bills of these parties there is no narration with respect to the quantity i.e. number of diamonds as well as the colour et cetera. To support the same, the learned authorized representative has submitted the other beans of the other parties, which have been accepted by the learned assessing officer as genuine purchases. On
With respect to one-to-one mapping therefore only criteria is the sale of carats of the diamond. Assessee has shown that number of carats purchased from the three entities is 585.88 carats and the sale of the diamond is also 585.88 carats. The amount of purchases recorded his 6.27 crores whereas the sale of the same diamond is shown at 6.71 crores. With respect to purchases from RA Distributors private limited, the assessee has purchased 496.88 carats and identical carats were sold. The purchase price of these diamonds is ₹ 5.39 crores and the sale is ₹ 5.79 crores. With respect to the purchases from three different entities the learned CIT – A has noted that assessee has purchased from these parties ₹ 5.29 crores, 6.97 crores and ₹ 7.40 crores out of which the learned assessing officer has doubted only Rs 2.49 crore, 2.19 crores and ₹ 1.58 crores. The total purchases affected by the parties are also having identical billing narration. Thus, according to us the learned CIT – A has correctly decided that there is a one-to-one mapping available from purchases which are considered as alleged bogus
"8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT (A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot he applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under— " So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into
Further, honourable Bombay High Court in case of Sundram gems Private Limited ITA number 6785 of 2010 has categorically held that in case of Diamond trade, carrat wise stock maintenance would be the sufficient compliance; therefore, the assessee cannot be further burdened to show the colour and number of diamonds. When bills of purchases from other parties and from the same parties where part of the purchase consideration is accepted as genuine, no such details are available in the sale bill, we do not find any reason to deviate from the finding of the learned CIT – A.
In view of the above facts, we find that the learned CIT – A has correctly considered that the purchases from these parties is genuine when part of purchases from the same parties is not disputed, even otherwise, even if it is held that the purchases from
"Decision on Ground No. 4, 6 and 7 10.2 I have carefully considered the above submission of the appellant in the light of findings in the assessment order. The AO has made the impugned addition as he found that the four concerns have not carried out any genuine business but are solely used for accommodation entries in the form of commission expenses. The AO has formed his opinion about the bogus nature of commission expenses on the basis of information received from the Investigation Directorate, Mumbai to the effect that the appellant had debited commission expenses to companies' viz., M/s Flora Impex, M/s Nishant Impex, M/s Rahil Impex and M/s Shloka Traders, which have same address. According to the AO these companies were not traceable at the addresses mentioned in the FTRS and no business activity was carried out from said premises. It is observed that though the appellant had submitted various documentary evidences in support of its claim, in the opinion of the AO, no evidence is submitted to establish the nature of services rendered by the above mentioned entities to which the impugned commission was paid. According to the AO, the payment through banking channel is not a conclusive proof of genuine transaction.
10.3 Notices u/s 133(6) of the Act were issued by the AO to the four parties in order to find their identity and genuineness of transaction. It is mentioned in the assessment order that only M/s Shloka Traders Pvt Ltd. furnished its reply vide letter dated 09.12.2019, while no response was received from M/s Flora Impex, M/s Nishant Impex and M/s Rahil Impex. Considering the above, the AO has drawn the following conclusion- 6.7 In view of the facts and in absence of any evidences/ submissions/ details from M/s Flora Impex Pvt. Ltd., M/s. Rahil Impex Pvt. Ltd. and M/s Nishant Impex Pvt. Ltd. the
S Name Commi Commi r of the ssion ssion . Comp Income income anies Shown disallo N (Broke In the wed in o rs) Audite the . d A/c order and of M/s accept Asian ed in Star co. the for A.Y. respect 2012- ive 13 order of 4 Compa nies 1 Flora Impex Rs 22,72,761/- Rs 20,54,691/- . Pvt. Ltd. 2 Nishant Impex N.A. Rs 05,99,25/- . Pvt. Ltd. 3 Rahil Impex Rs 26,19,996/- Rs 24,70,750/- . Pvt. Ltd. 4 Shloka Traders Rs 31,67,985/- Rs 31,90,545/- . Pvt. Ltd.
"Discussions and Findings 8. I have carefully gone through the submissions, both written and oral, from both the sides including the facts recorded in the SCN, orders under section 24(3), 24 (4), reference u/s replies by the defendants and the rejoinders by the Initiating Officer, the documents in the RUDs etc. On perusal of these documents and submissions and after
In the result, appeal filed by the learned assessing officer is dismissed.
Order pronounced in the open court on 23.05.2023.
Sd/- Sd/- (KAVITHA RAJAGOPAL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 23.05.2023 Sudip Sarkar, Sr.PS/ Dragon Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5.
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
Sr. Particulars Date Initials Person No. concern ed 1 Draft dictated Sr.PS 2 Draft placed before author Sr.PS 3 Draft proposed & placed before the AM second Member 4 Draft discussed/approved by Second AM Member 5 Approved Draft comes to the Sr.PS/PS Sr.PS 6 Kept for pronouncement on Sr.PS 7 File sent to the Bench Clerk Sr.PS 8 Date on which file goes to the Head Clerk 9 Date of dispatch of Order 10 Dictation Sheet is attached herewith
