INCOME TAX OFFICER 25(3)(1), MUMBAI vs. SHEETAL EXPORTS, MUMBAI

This is an appeal preferred by the Revenue against the action of the Ld. Commissioner of Income Tax directing the AO to restrict addition made u/s 68 of the Income Tax Act 1961, (hereinafter “the Act”) to the tune of Rs. 2,67,00,986/- from 100% to 3% of the bogus purchases made of Rs. 2,67,00,986/-.

Brief facts as noted by the AO is that he has framed the assessment order on the direction of this Tribunal vide order dated 18.02.2017 wherein the AO was directed to pass fresh assessment order after providing sufficient opportunity to the assessee. The AO noted that he got information from DGIT investigation Mumbai about beneficiaries who obtained accommodation entries provided by Bhawarlal Jain Group. According to AO, on examination of the said 2 A.Y. 2009-10 Sheetal Exports information it was found that the assessee was one of the beneficiary of accommodation entries given by Bhawarlal Jain Group. According to the AO, Bharwarlal Jain is controlling 70 benami concerns through his son and his employees and two such concerns are M/s Daksh diamonds and M/s Impex Gems. According to the AO, in the assessment year under consideration (AY 2009-10) assessee had transactions with M/s Daksh diamonds and M/s Impex Gems to the tune of Rs. 2,67,00,986/- (Rs. 1,40,54,756/- and Rs. 1,26,46,230/- respectively). According to the AO, these were bogus purchases and therefore the entire purchase was added to the returned income of Rs. 10,82,160/-. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) wherein the Ld.CIT(A) was of the opinion that even though the transaction may be bogus, but still the entire purchases cannot be brought to tax because AO has not doubted the sales booked by assessee and therefore he restricted the addition to 3% of the purchases made from both the concerns (profit embedded in the sales).

Aggrieved, the Revenue is before us.

We have heard both the parties and perused the records. We note that the assessee is into the business of trading in diamonds; and in the year under consideration assessee had purchased goods from M/s Daksh Diamonds and M/s Impex Gems to the tune of Rs. 1,40,54,756/- and Rs. 1,26,46,230/- respectively (Rs. 2,67,00,986/-). It was pointed out by the Ld.AR that the AO has not doubted the sales (turn-over of assessee). And it is common knowledge that without 3 A.Y. 2009-10 Sheetal Exports purchases, no sale can take place and therefore according to the Ld.AR, the Ld.CIT(A) has rightly only taxed the profit embedded in the purchases. We note from the action of the Ld.CIT(A) that he has impliedly accepted that even though the purchase bills given by the both concerns of Bhawarlal Jain may be bogus/accommodation entries, but since the AO has accepted the sales (turn-over) of trading shown by the assessee, the entire purchases shown by assessee to the tune of Rs.2,67,00,986/- cannot be disallowed because without purchases, there cannot be sales. So the Ld. CIT(A) has presumed that the assessee would have purchased the goods from the grey market and thereafter sold the goods and shown it in its Profit & Loss account as sales figure and to support the purchases might have took the bills from accommodation providers. Therefore the Ld CIT(A) was of the opinion that the action of the AO to tax the entire amount of such purchases was erroneous and instead only taxed the profit embedded on such bogus purchases, which action of Ld. CIT(A) according to us was just and proper in the facts of the case; and therefore, we confirm the action of Ld.CIT(A) wherein he has rightly restricted the addition at 3% of the bogus purchases of Rs. 2,67,00,986/- which comes to Rs.18,83,190/-. In respect of estimation of income at 3% of the bogus purchases, we note that the assessee’s total trading account shows GP of 1.70%; and on account of the bogus purchases from Bharwarlal Jain of Rs.2,67,00,986/,- the assessee has shown sales to the tune of Rs. 2,73,12,757/- which comes to 2.24% (GP). Therefore, the adoption of 3% by the Ld.CIT(A) to estimate the profit on the bogus purchases is just and reasonable which is supported by various judicial precedents 4 A.Y. 2009-10 Sheetal Exports in similar cases. Therefore, we are inclined to uphold that action of the Ld.CIT(A) and dismiss the grounds of appeal