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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals), National Faceless & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 14.10.2022 and 11.10.2022 for the A.Ys. 2009-10 and 2011-12 respectively, in sustaining the action of the Assessing Officer.
Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order.
Briefly stated the facts are that, assessee filed return of income on 27.09.2009 and 29.09.2011 declaring income of ₹.67,966/- and ₹.45,24,331/- for the A.Y. 2009-10 and A.Y.2011-12 respectively, and the returns were processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). The case was reopened u/s. 147 of the Act by issue of notice u/s.148 of the Act after recording the reasons. Notice u/s. 142(1) of the Act was issued along with the questioner. In response Authorised Representative of the assessee attended and submitted the relevant information as called for.
Assessee is engaged in the business of trading and manufacturing in diamonds. A search and survey action was conducted in the case of Shri Bhanwarlal Jain group on 03.10.2013 by DGIT (Investigation)
Page No. | 2 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds Mumbai. Subsequently, Assessing Officer received information from the DGIT(Inv.,), Mumbai about the accommodation entries provided by various dealers operated by the Shri Bhanwarl Jain group and assessee was also one of the beneficiary from those dealers. The assessments were reopened u/s. 147 of the Act based on the information received from DGIT (Inv.,), Mumbai, that the assessee has availed accommodation entries from various dealers who are said to be providing accommodation entries without there being transportation of any goods. In the reassessment proceedings, the assessee was asked to prove the genuineness of the purchases made from various dealers as referred in Assessment Order. In response assessee filed its submissions and submitted that the purchases made are genuine.
5. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Accordingly, Assessing Officer treated the said purchases made for an amount of ₹.5,43,22,196/- and ₹.1,36,57,400/- for the A.Y. 2009-10 and 2011-12 respectively as bogus and non-genuine purchases and added a sum of ₹.27,16,110/- and Page No. | 3 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds ₹.4,09,722/- being 5% and 3% of the purchases for the A.Y. 2009-10 and 2011-12 respectively. On appeal the Ld.CIT(A) sustained the action of the Assessing Officer in estimating the Gross Profit at 5% and 3% for the A.Y.2009-10 and A.Y. 2011-12 respectively. Against these orders of the Ld.CIT(A) assessee is in appeal.
Aggrieved, assessee preferred appeal before us raising following similar grounds except for change in figures in both the Assessment Years. Grounds raised by the assessee in ITA.No. 3125/Mum/2022 are reproduced below: -
“1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming proceeding under section 148 of Income Tax Act, 1961.
2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs. 27,16,110 i.e. 5% of Rs.5,43,22,196 by treating genuine purchase as suspicious in nature.
3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming charging of Interest under section 234B, 234C of Income Tax Act, 1961.
4. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty proceedings under section 271(1)(c) of Income Tax Act, 1961
Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.”
Page No. | 4 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds 7. Ld. Counsel for the assessee reiterated the submissions made before the Ld.CIT(A). Further, Ld. Counsel for the assessee submitted that assessee is in the business of Diamonds and the profit percentage in the diamond manufacturing business ranges from 1.5% to 4.5%. Ld. AR relying on the decision of the Coordinate Bench in the case of M/s. Star Brillian v. ITO in ITA.No. 1551 & 1552/Mum/2020 dated 12.07.2022 submitted that the profit percentage sustained by the Ld.CIT(A) is on higher side and prayed that the reasonable percentage may be adopted. Copy of the order is placed on record.
On the other hand, Ld. DR supported the orders of the authorities below.
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 Page No. | 5 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds 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.
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 Page No. | 6 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds 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.”
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
Page No. | 7 & 3127/MUM/2022 (A.Ys: 2009-10 & 2011-12) Ankit diamonds 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.
In the result, appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 20th April, 2023.