M/S. GURJAR GEMS PVT. LTD.,MUMBAI vs. ACIT, CIRCLE 9(3)(2), MUMBAI

This appeal by the assessee is directed against order dated 19th of December, 2022 passed by the Ld. Commissioner of Income- tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds: “1. The Commissioner of Income Tax (Appeals) - NFAC, New Delhi, [hereinafter referred to as 'the CIT(A)'1 erred in confirming the action of AO in re-opening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961.

Briefly stated facts of the case are that the assessee company stated facts of the case are that the assessee company stated facts of the case are that the assessee company was engaged in the business of manufacturing of studded jewellery was engaged in the business of manufacturing of studded jewellery was engaged in the business of manufacturing of studded jewellery including diamond jewelry. For the year under consideration, the including diamond jewelry. For the year under consideration, the including diamond jewelry. For the year under consideration, the assessee filed return of income on 24/09/2012 declaring total return of income on 24/09/2012 declaring total return of income on 24/09/2012 declaring total income of ₹52,85,590/ 590/-. The return of income filed by the assessee . The return of income filed by the assessee was selected for scrutiny and assessment under section 143(3) of was selected for scrutiny and assessment under section 143(3 was selected for scrutiny and assessment under section 143(3 the Income-tax Act, 1961 ( tax Act, 1961 (in short ‘the Act’) was completed on ) was completed on 21/03/2015, wherein herein the the returned return income income was was accepted. accepted. Subsequently, on receipt of information from the investigation wing on receipt of information from the investigation wing on receipt of information from the investigation wing M/s Gurjar Gems Pvt. Ltd. 4 ITA No. 213/M/2023 of the Income-tax Department epartment, Mumbai that assessee received an Mumbai that assessee received an accommodation entry of bogus purchase from Sri Anil Chokara accommodation entry of bogus purchase from Sri Anil Chokara accommodation entry of bogus purchase from Sri Anil Chokara (Prop. Of Keshav Impex) (Prop. Of Keshav Impex) during the year under consideration, the during the year under consideration, the Assessing Officer reopened the assessment by way of issue of notice Assessing Officer reopened the assessment by way of issue of notice Assessing Officer reopened the assessment by way of issue of notice under section 148 of the under section 148 of the Act on 29/03/2019. In the reassessment on 29/03/2019. In the reassessment order dated 03/12/2019 in terms of section 143(3) read with order dated 03/12/2019 in terms of section 143(3) read with order dated 03/12/2019 in terms of section 143(3) read with section 147 of the A Act, the Assessing Officer disallowed the entire disallowed the entire purchase of ₹ 88 lakh shown from the said party in the books of 88 lakh shown from the said party in the books of 88 lakh shown from the said party in the books of accounts of the assessee. On further appeal, the Ld. CIT(A) accounts of the assessee. On further appeal, the Ld. CIT(A) accounts of the assessee. On further appeal, the Ld. CIT(A) restricted the disallowance to 8% of the restricted the disallowance to 8% of the purchase,which purchase,which was worked out to ₹7,04,000/-. Aggrieved, the assessee is before the . Aggrieved, the assessee is before the Tribunal . Aggrieved, the assessee is before the by way of raising grounds by way of raising grounds as reproduced above.

Before us the Ld. the Ld. counsel of the assessee submitted that counsel of the assessee submitted that assessee has duly discharged assessee has duly discharged its onus of establishing genuineness onus of establishing genuineness of the purchase. The of the purchase. The Ld. counsel submitted that relevant that relevant purchase is genuine,because, ,because, firstly, the assessee has already filed copy of , the assessee has already filed copy of ledger account of M/s Keshav Impex alongwith copies of tax ledger account of M/s Keshav Impex alongwith copies of tax ledger account of M/s Keshav Impex alongwith copies of tax invoices issued by M/s Keshav Impex. invoices issued by M/s Keshav Impex. Secondly, the payment to , the payment to Keshav Impex was made through Keshav Impex was made through proper banking channel and there proper banking channel and there is no allegation of the Assessing Officer that the assessee received no allegation of the Assessing Officer that the assessee received no allegation of the Assessing Officer that the assessee received back the payments made to Keshav Impex in cash or otherwise. back the payments made to Keshav Impex in cash or otherwise. back the payments made to Keshav Impex in cash or otherwise. Thirdly, the gold purchase , the gold purchased from M/s Keshav Impex was used by from M/s Keshav Impex was used by se of the business of making jewelry the assessee in the normal cour the assessee in the normal course of the business of making jewelry and the jewelry made by the assessee has already been sold to the and the jewelry made by the assessee has already been sold to the and the jewelry made by the assessee has already been sold to the M/s Gurjar Gems Pvt. Ltd. 5 ITA No. 213/M/2023 various independent third party buyers various independent third party buyers, which has not been which has not been disputed by the Assessing Officer. disputed by the Assessing Officer. Fourthly, the quantitative details , the quantitative details of purchase and the sale purchase and the sales was duly reflected in the tax audit report, was duly reflected in the tax audit report, a copy of which was filed before the Assessing Officer. The ld. a copy of which was filed before the Assessing Officer. The l a copy of which was filed before the Assessing Officer. The l counsel further submitted that the Assessing Officer has made counsel further submitted that the Assessing Officer has made counsel further submitted that the Assessing Officer has made addition solely on the basis of the information received from the addition solely on the basis of the information received from the addition solely on the basis of the information received from the investigation wing without bringing any cogent material on record. without bringing any cogent material on record. without bringing any cogent material on record. Therefore, according to him no disallowance is called for in the case Therefore, according to him no disallowance is called for in the case Therefore, according to him no disallowance is called for in the case of the assessee.

The Ld. Departmental Representative (DR) Departmental Representative (DR) on the other hand on the other hand relied on the order of the relied on the order of the lower authorities and submitted that the authorities and submitted that the Assessing Officer issued notice under section 133(6) of the Act for Assessing Officer issued notice under section 133(6) of the Assessing Officer issued notice under section 133(6) of the verification of genuineness of the purchase made from the said verification of genuineness of the purchase made from the said verification of genuineness of the purchase made from the said party, however there was no compliance of the said notice there was no compliance of the said notice and the there was no compliance of the said notice assessee also did not p assessee also did not producedthe party before the Assessing party before the Assessing Officer and therefore Assessing Officer is justified in disallowing the Officer and therefore Assessing Officer is justified in disallowing the Officer and therefore Assessing Officer is justified in disallowing the purchases shown by the assessee in its books of accounts. purchases shown by the assessee in its books of accounts. purchases shown by the assessee in its books of accounts.

We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused th dispute and perused the relevant material on record. We find that e relevant material on record. We find that the Assessing Officer made disallowance of the whole of the the Assessing Officer made disallowance of the whole of the the Assessing Officer made disallowance of the whole of the purchase purchase purchase amount amount amount from from from M/s M/s M/s Keshav Keshav Keshav Impex Impex Impex amounting amounting amounting to to to ₹88,00,000/-. But we find that assessee has shown quantitative . But we find that assessee has shown quantitative . But we find that assessee has shown quantitative tally of purchase and subsequent tally of purchase and subsequent consumption of the gold shown to of the gold shown to M/s Gurjar Gems Pvt. Ltd. 6 ITA No. 213/M/2023 have purchased from from M/s Keshav Impex. The Assessing Officer has The Assessing Officer has not doubted the sales and the consumption of the goldused in not doubted the sales and the consumption of the goldused in not doubted the sales and the consumption of the goldused in manufacturing of jewelry, therefore in such circumstances the only manufacturing of jewelry, therefore in such circumstances the only manufacturing of jewelry, therefore in such circumstances the only possibility is that the assessee has possibility is that the assessee has purchased gold from grey market and only obtained bill from M/s Keshav Impex. In such market and only obtained bill from M/s Keshav Impex. In such market and only obtained bill from M/s Keshav Impex. In such circumstances the Ld. CIT(A) has restricted the disallowance to the circumstances the Ld. CIT(A) has restricted the disallowance to the circumstances the Ld. CIT(A) has restricted the disallowance to the 8% of the purchase a as recorded in the books of accounts from M/s s recorded in the books of accounts from M/s Keshav Impex. The relevant finding o Keshav Impex. The relevant finding of the Ld. CIT(A) is reproduced f the Ld. CIT(A) is reproduced as under: “3.4 I have carefully considered the submissions and judicial 3.4 I have carefully considered the submissions and judicial 3.4 I have carefully considered the submissions and judicial pronouncement quoted by the Appellant and'Assessment pronouncement quoted by the Appellant and'Assessment pronouncement quoted by the Appellant and'Assessment Order. That the Appellant has contended thalufelgold Order. That the Appellant has contended thalufelgold Order. That the Appellant has contended thalufelgold purchased from MIs Keshav Impex purchased from MIs Keshav Impex was used by the was used by the Abpellant in its normal course of business of Jewelleryand Abpellant in its normal course of business of Jewelleryand Abpellant in its normal course of business of Jewelleryand the same has also been sold id various independent third ame has also been sold id various independent third ame has also been sold id various independent third party buyers. That the Appellan party buyers. That the Appellant has jurther contended that has jurther contended that the quantitative details of purchases and alps made by the the quantitative details of purchases and alps made by the the quantitative details of purchases and alps made by the- Appellant are also reflected in Tax Audit Report of the llant are also reflected in Tax Audit Report of the llant are also reflected in Tax Audit Report of the Appellant filed before the A during the course of Assessment Appellant filed before the A during the course of Assessment Appellant filed before the A during the course of Assessment Proceeding which was accepted by the Assessing Officer Proceeding which was accepted by the Assessing Officer Proceeding which was accepted by the Assessing Officer andthe trading result was also accepted. andthe trading result was also accepted. That from above facts it is clear that Ld. Asse That from above facts it is clear that Ld. Assessing Officer ssing Officer has verified and accepted the guantitative details related to has verified and accepted the guantitative details related to has verified and accepted the guantitative details related to sales and purchases. The Ld.Assessing Officer has made the sales and purchases. The Ld.Assessing Officer has made the sales and purchases. The Ld.Assessing Officer has made the above addition solely on the basis of information received above addition solely on the basis of information received above addition solely on the basis of information received from Income Tax Officer, Surat without bringing any cogent from Income Tax Officer, Surat without bringing any cogent from Income Tax Officer, Surat without bringing any cogent material on record. erial on record. Further, Ld. Assessing Officer had reopened the case based Further, Ld. Assessing Officer had reopened the case based Further, Ld. Assessing Officer had reopened the case based upon the information received from IT Ward upon the information received from IT Ward-1(1)(4) Surat i.e. 1(1)(4) Surat i.e. the appellant has bookedbogus purchase from M/s Keshav the appellant has bookedbogus purchase from M/s Keshav the appellant has bookedbogus purchase from M/s Keshav Impexof Diamond and said entity was not doing the business Impexof Diamond and said entity was not doing the business Impexof Diamond and said entity was not doing the business of Diamond. In this regard the appellant had submitted iamond. In this regard the appellant had submitted iamond. In this regard the appellant had submitted thatAppellant had purchased Gold from M/sKeshav Impex thatAppellant had purchased Gold from M/sKeshav Impex thatAppellant had purchased Gold from M/sKeshav Impex M/s Gurjar Gems Pvt. Ltd. 7 ITA No. 213/M/2023 and not done any transaction relatedto Diamond. Therefore, and not done any transaction relatedto Diamond. Therefore, and not done any transaction relatedto Diamond. Therefore, information passed on by the Assessing Officer is general in information passed on by the Assessing Officer is general in information passed on by the Assessing Officer is general in nature and not directly pertain nature and not directly pertain to the nature of business of to the nature of business of the Appellant. the Appellant. Furthermore, in the similar matter, Hon'ble Jurisdictional Furthermore, in the similar matter, Hon'ble Jurisdictional Furthermore, in the similar matter, Hon'ble Jurisdictional Bombay High Court in the case of PCIT Vs. Mohommad Haji Bombay High Court in the case of PCIT Vs. Mohommad Haji Bombay High Court in the case of PCIT Vs. Mohommad Haji Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High Court has held that only the profit margi Court has held that only the profit margin in alleged bogus n in alleged bogus purchases can be addedto the total income of the Appellant purchases can be addedto the total income of the Appellant purchases can be addedto the total income of the Appellant by observing as under: by observing as under: 8 In the present case, as noted above, the assessee was a 8 In the present case, as noted above, the assessee was a 8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were trader of fabrics. The A.O. found three entities who were trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. indulging in bogus billing activities. A.O. found that the A.O. found that the purchases made by the assessee from these entities were purchases made by the assessee from these entities were purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on bogus. This being a finding of fact, we have proceeded on bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the such basis. Despite this, the question arises whether the such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase Revenue is correct in contending that the entire purchase Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional should be added by way of assessee's additional should be added by way of assessee's additional income or the assessee is correct in contending that such income or the assessee is correct in contending that such income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the logic cannot be applied. The finding of the CIT(A) and the logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not Tribunal would suggest that the department had not Tribunal would suggest that the department had not disputed the assessee's sales. There wa disputed the assessee's sales. There was no discrepancy s no discrepancy between the purchases shown by the assessee and the sales between the purchases shown by the assessee and the sales between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in declared. That being the position, the Tribunal was correct in declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be coming to the conclusion that the purchases cannot be coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The rejected without disturbing the sales in case of a trader. The rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited ribunal, therefore, correctly restricted the additions limited ribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the to the extent of bringing the G.P. rate on purchases at the to the extent of bringing the G.P. rate on purchases at the same rate of other genuin same rate of other genuine purchases. Identical view was also taken by the Hon'ble Jurisdictional Identical view was also taken by the Hon'ble Jurisdictional Identical view was also taken by the Hon'ble Jurisdictional Bombay High Courtin the case of a c Bombay High Courtin the case of a company who was ompany who was engaged in the business of manufacturingof all kinds of engaged in the business of manufacturingof all kinds of engaged in the business of manufacturingof all kinds of industrial power controlling instrument industrial power controlling instrument cables and cables and and related items i.e. PIT Vs. RishabhdevTachnocable Ltd related items i.e. PIT Vs. RishabhdevTachnocable Ltd related items i.e. PIT Vs. RishabhdevTachnocable Ltd [2020]115 taxmann.com 333 (Bombay), held as under : 115 taxmann.com 333 (Bombay), held as under : 115 taxmann.com 333 (Bombay), held as under : "Section 68 of the Income "Section 68 of the Income-tax Act. 1961 - Cash credits (Bogus Cash credits (Bogus purchases) purchases) - Assessment year 2010-11 - Assessee had Assessee had declared certain purchases to be made during year declared certain purchases to be made during year declared certain purchases to be made during year - Assessing Officer added entire quantum of purchases to Assessing Officer added entire quantum of purchases to Assessing Officer added entire quantum of purchases to M/s Gurjar Gems Pvt. Ltd. 8 ITA No. 213/M/2023 income of assessee on plea that purchases were bogus income of assessee on plea that purchases were bogus income of assessee on plea that purchases were bogus purchases made from hawala parties es made from hawala parties - Commissioner Commissioner (Appeals) held that there could be no sales without (Appeals) held that there could be no sales without (Appeals) held that there could be no sales without purchases and when sales made by assessee were accepted purchases and when sales made by assessee were accepted purchases and when sales made by assessee were accepted by Assessing Officer, then entire purchases could not be by Assessing Officer, then entire purchases could not be by Assessing Officer, then entire purchases could not be disallowed - - He took view that only reasonable p He took view that only reasonable profit at rate of 2 per cent on purchases should be added back to income of 2 per cent on purchases should be added back to income of 2 per cent on purchases should be added back to income of assessee of assessee - Tribunal, on appeal filed by revenue, held that Tribunal, on appeal filed by revenue, held that 2 per cent of profit which was directed to be added by 2 per cent of profit which was directed to be added by 2 per cent of profit which was directed to be added by Commissioner (Appeals) was on lower side and directed Commissioner (Appeals) was on lower side and directed Commissioner (Appeals) was on lower side and directed Assessing Off Assessing Officer to make further addition of 3 per cent icer to make further addition of 3 per cent. Apart from above orders./for'ble Jurisdictional ITAT, Mumbai part from above orders./for'ble Jurisdictional ITAT, Mumbai part from above orders./for'ble Jurisdictional ITAT, Mumbai inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble Tribunal restricted thedisallowance Tribunal restricted thedisallowance to 3% of alleged bogus to 3% of alleged bogus purchased by purchased by observing at under "6....The ITAT, "6....The ITAT, Mumbai innumber of cases had considered Mumbai innumber of cases had considered identical issue and deperding upon facts of each case, identical issue and deperding upon facts of each case, identical issue and deperding upon facts of each case, directed the Ld.AO to estimate profit of 3% to 12.50% on total directed the Ld.AO to estimate profit of 3% to 12.50% on total directed the Ld.AO to estimate profit of 3% to 12.50% on total alleged bogus purchases. I alleged bogus purchases. In this case, the assessee is into n this case, the assessee is into the business of diamond trading. The profit element in the business of diamond trading. The profit element in the business of diamond trading. The profit element in diamond trading is around 2 to 3% depending upon nature of diamond trading is around 2 to 3% depending upon nature of diamond trading is around 2 to 3% depending upon nature of trade. Even, the BEP had recommended profit percentage of trade. Even, the BEP had recommended profit percentage of trade. Even, the BEP had recommended profit percentage of 2% in case of trading and 3% for manufacturers. Th 2% in case of trading and 3% for manufacturers. Th 2% in case of trading and 3% for manufacturers. The Id. AO, considering the nature of business of the assessee had considering the nature of business of the assessee had considering the nature of business of the assessee had estimated 12.50% profit, whereas the Ld.CIT(A) has scaled estimated 12.50% profit, whereas the Ld.CIT(A) has scaled estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down estimation of profit to 3% on tetal alleged bogus down estimation of profit to 3% on tetal alleged bogus down estimation of profit to 3% on tetal alleged bogus purchase... Therefore, in view of above judgment and the ratios thereof, Therefore, in view of above judgment and the ratios thereof, Therefore, in view of above judgment and the ratios thereof, the same may ame may applied on facts & circumstancesof the instant applied on facts & circumstancesof the instant case, as under: case, as under: . That the Appellant has furnishedthe information related to . That the Appellant has furnishedthe information related to . That the Appellant has furnishedthe information related to the suppliers and the details were furnished with regard to the suppliers and the details were furnished with regard to the suppliers and the details were furnished with regard to purchase during the assessment proceeds which was purchase during the assessment proceeds which was purchase during the assessment proceeds which was accepted by th accepted by the AO as such. • That during the reassessment proceeding also the details • That during the reassessment proceeding also the details • That during the reassessment proceeding also the details with regard to the Tax Invoice of transaction, supplier with regard to the Tax Invoice of transaction, supplier with regard to the Tax Invoice of transaction, supplier identity, address and ledger account of parties etc. were identity, address and ledger account of parties etc. were identity, address and ledger account of parties etc. were furnished.