M/S SUNSTAR GEMS CORPORATION, JAIPUR vs. INCOME TAX OFFICER, WARD-2-1, JAIPUR

1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in estimating the GP @ 8% against 25% of the bogus purchases disallowed by the AO following Hon’ble Supreme Court’s decision on bogus purchases in the case of Vijay Proteins Pvt. Ltd.?

None has appeared on behalf of the assessee/respondent when this appeal was called for hearing through video conferencing. However, since the tax effect in the revenue’s appeal is below the monetary limit as prescribed in CBDT circular No. 03/2018 dated 20/08/2018, therefore, this appeal was taken up for hearing and disposal ex parte.

Admittedly, the tax effect involved in this appeal filed by the revenue is only Rs. 18,191/- which is below the limit prescribed in the Circular No. 03/2018 and therefore, the question about the maintainability of this appeal arises. The ld DR has submitted that the present case falls in the exception provided in para 10(e) of the Circular No. 03/2018 dated 20/08/2018 as the A.O. has made addition on the basis of the information received from DGIT (Inv.), Mumbai regarding the bogus/unverifiable transactions of purchases made by the assessee from various parties. Thus, the ld DR has submitted that the addition was made based on the basis of information received from the Law Enforcement Agency being the DGIT (Inv.) which is an independent agency of the department and hence this case falls in the exception provided in para 10(e) of the said Circular No. 03/2018.

We have considered the submissions of the ld DR and carefully perused the relevant material available on record. Undisputedly, the addition made by 3 ITO Vs M/s Sunstar Gems Corporation the A.O. on account of unverifiable/bogus purchases made by the assessee of Rs. 77,759/- was restricted by the ld. CIT(A) to Rs. 18,889/-, therefore, the ld. CIT(A) had deleted the addition to the extent of Rs. 58,870/-. Thus, the tax effect in the revenue’s appeal is very less and not exceeding the limits provided in the Circular No. 03/2018 dated 20/08/2018. The ld DR has contended that the addition made by the A.O. was on the basis of information received from the DGIT (Inv.), Mumbai and therefore, the case falls in the exception as provided in para 10(e) of the Circular No. 03/2018. We do not agree with this contention of the ld DR for the simple reason that the information received by the A.O. from the DGIT(Inv.), Mumbai does not fall in the exception as provided in para 10(e) of the Circular No. 03/2018 which reads as under: “ 10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect : (e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI). Thus, the exception as carved out in Clause (e) of para 10 of the Circular is regarding the cases where the addition is made by the A.O. on the basis of information received from external sources being the Law Enforcement Agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI). When the agencies are specified in para 10(e) of the Circular No. 03/2018 are in the nature of law enforcement external agencies then the Investigation Wing of the Income Tax Department itself would not fall in the 4 ITA No. 638/JP/2019 ITO Vs M/s Sunstar Gems Corporation said category of external law enforcement agencies specified in Clause (e) of para 10 of Circular No. 03/2018. Therefore, we do not find any substance or merits in the submissions of the ld DR that the case of the assessee falls in the exception as provided in Clause (e) of para 10 of Circular No. 03/2018. We further note that this Tribunal has taken a consistent view in a series of decisions that the addition made by the A.O. based on information received from the Investigating Wing of the department does not fall in the category of information received from the external source being Law Enforcement Agencies such as CBI/ED/DRI/SFIO/Directorate General of GST Intelligence (DGGI) etc. as prescribed in Clause (e) of para 10 of Circular No. 03/2018. Accordingly, the appeal of the revenue is not maintainable as the tax effect involved in this appeal of the revenue does not exceed the monetary limit provided in CBDT Circular No. 03/2018 dated 20/08/2018.

In the result, appeal of the revenue is dismissed.