APEX DIAMONDS,MUMBAI vs. ITO-19(1)(1), MUMBAI

The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of gross profit on alleged bogus purchases.

We heard the parties and perused the record. The assessee is trader and exporter of diamonds and other precious/non-precious stones. The Income Tax Department received information that Shri Bhanwarlal Jain Group, which was subjected to search operations, has been indulging in providing accommodation bills without actually supplying the materials. It was noticed that the two group concerns belonging to Bhanwarlal Jain, viz., M/s Rajan Diamonds and M/s Navkar Diamonds have issued bills to the 2 Apex Diamonds assessee for an amount aggregating to Rs.1,75,71,522/-. Hence, the Assessing Officer reopened the assessment of the assessee for A.Y. 2010-11 by issuing notice under section 148 of the Act.

Before the Assessing Officer, the assessee submitted the financial statements, purchase and sale registers, confirmation obtained from the above said two concerns, bank statements of the above said two concerns etc. in order to prove genuineness of purchases. However, the Assessing Officer took the view that the assessee might have procured diamonds from the grey market and obtained bills from the above said parties. Accordingly, the AO held that the profit element involved in purchasing diamonds from grey markets should be assessed to tax. The Assessing Officer estimated the profit rate at 8% and accordingly made the addition of Rs. 14,05,722/- computed @ 8% on the value of non-genuine purchase of Rs. 1.75 crores referred above. The learned CIT(A) also confirmed the same.

Before us learned AR placed reliance on the decision rendered by Hon'ble High Court of Bombay in the case of PCIT Vs. M/s. Mohommad Haji Adam & Co. (IT Appeal No. 1004 of 2016 and others dated 11.2.2019). He submitted that Hon'ble Jurisdictional High Court has upheld the addition to the extent of GP rate declared on other genuine purchases. He submitted that in the instant case the GP rate declared on alleged bogus purchases was more than the GP rate declared on other genuine purchases. Accordingly, he submitted that no addition is warranted in the facts and circumstances of the case.

On the contrary, learned DR submitted that the matter may be restored to the file of the Assessing Officer for examining the above said contentions of the assessee.

We heard rival contentions and perused the record. There should not be any dispute that the decision rendered by Hon'ble Jurisdictional High Court is binding upon the Assessing Officer. It is the contention of the assessee that the GP rate declared in the alleged non-genuine purchase is more than the GP rate declared on other genuine purchase and hence, as per the decision rendered by Hon'ble Jurisdictional Bombay High Court, no addition is called for. In this regard learned AR invited our attention to the letter dated 4.5.2019 furnished to the learned CIT(A). However, as rightly pointed out by learned DR, these factual aspects require verification at the end of the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) and restore this issue to the file of the Assessing Officer with the direction to examine the issue afresh duly following the decision rendered by Hon'ble Bombay High Court in the case of Mohommad Haji Adam & Co. (cited supra).

In the result, appeal filed by the assessee is treated as allowed.