KARNI JEWELLERS, HYDERABAD,HYDERABAD vs. ACIT, CIRCLE-4(1), HYDERABAD, HYDERABAD

The assessee has raised several grounds in this appeal. However, the crux of the issue is that the Ld.CIT(A) has erred in confirming the addition made by the Ld.AO, who had disallowed purchases aggregating to Rs.98,69,910/- by treating it to be ‘bogus purchases’.

Brief facts of the case are that the assessee is a firm, engaged in the business of trading in jewelry. A search and seizure operation u/s.132 of the Income Tax Act [Act] was carried out in the case of Shri Bhanwarlal Jain group on 03- 10-2013, wherein it was revealed that they are operating and managing 70 Binami Concerns through which they had provided accommodation entries towards un-secured loans and bogus purchases to various beneficiaries. It was further revealed that M/s. Bhanwarlal Group concerns have received an amount of Rs.98,69,702/- from the assessee-firm through banking channels, against which M/s.Bhanwarlal Group concerns had issued bogus purchase bills to the assessee. Therefore, the Revenue issued notices u/s.148 of the Act to the assessee on 27-03-2014, in response to which, the assessee had stated that the return of income filed on 31-10-2007 may be treated as return filed in response to the notice u/s.148 of the Act, vide letter dt.09-09-2014. Thereafter, the case was taken up for scrutiny.

During the course of scrutiny assessment proceedings, the assessee had explained that one of the partners of the firm [elder brother] travelled to Surat in their own car and contacted the traders. After verifying the quality of the diamonds etc., they were purchased from M/s. Jewel Diam and directly brought to Hyderabad by road. It was further explained that the payment to the vendor was made subsequent to their sale after affixing it to the gold ornaments. It was further submitted that the diamonds were purchased by the assessee on credit due to trustworthiness. The assessee also produced the stock register in order to establish the purchases to be genuine. The assessee had further explained that the diamonds were handed over to the manufacturer for embedding in the jewelry and transferred to gold account. However, the Ld.AO treated the same as bogus transaction since during the course of investigation conducted on the seller of the diamonds it was revealed that they had issued bogus bills to the assessee without delivery of diamonds and it was also revealed that the vendor concerns merely existed on paper and they were not actually trading diamonds.

On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by agreeing his view and further made the following observations:

Before us, the Ld.AR vehemently argued by stating that the purchases made by the assessee for Rs.98,69,702/- is genuine, which is backed by payment made through banking channel and the diamonds were recorded in the stock register of the assessee. Ld.AR further pleaded that opportunity was not given to the assessee for cross-examining the seller of the diamonds, who had confessed for issuing bogus bills to the assessee. He therefore pleaded that either the addition made by the Ld.AO may be deleted or the matter may be remitted back to the file of Ld.AO thereby providing an opportunity for cross-examination of the vendor.

The Ld.DR, on the other hand, vehemently argued in support of the order of the Ld. authorities.

We have heard the rival submissions through video conference and carefully perused the material on record. On examining the Balance Sheet and examining the details submitted by the assessee in its Paper Book, we find that the total turnover of the assessee is as follows:

Sale of gold ornaments 6,29,910 PB Pg.No.16,18 within the state 2. Sale of gold ornaments out 3,88,61,050 PB Pg.No.16,18 of state 3. Sale of diamonds 10,60,000 PB Pg.No.16,17 Total: 4,05,50,960 8.1. Against the turnover of Rs.4,05,50,960/-, the assessee has declared net profit of Rs.1,33,921/- only. Thus, the assessee’s net profit from trading of gold jewelry and diamonds is only 0.33% of turnover which is abnormally low taking into account of the nature of business of the assessee. It apparently appears that the assessee has manipulated the accounts to arrive at a lower profit, because it had already declared Rs.40,45,000/- as its un-accountant income in its return towards excess stock of diamonds found during the survey. In this situation, the books of account and the statement of accounts furnished by the assessee cannot be relied upon. Moreover, there is a categorical finding by the Investigation Department of the Revenue that the assessee had received bogus bills aggregating to Rs.98,69,702/-towards its purchases wherein the payments were made through banking channels. It is also the finding of the Investigation wing of the Revenue that those concerns who had issued bogus bills to the assessee were concerns existing only on papers for the purpose of issuing bogus bills and were not trading or manufacturing concerns. Further, it is apparent that the assessee has not requested the Revenue authorities for cross- examining the vendors at the time of the proceedings before them. Therefore, the argument of the assessee that proper opportunity was not given to the assessee for cross-examining the vendors who had conceded for giving bogus bills to the assessee for purchase of diamonds, does not have any merit. Moreover, just because the assessee had made payments through banking channels to the vendors and recorded the diamonds purchased in its stock book does not make the transactions to be genuine with conclusive evidence. Further there is no materials on record to justify that the stock is reconciled with respect to purchases, sales and closing stock item wise. Needless to mention that there is every possibility for the assessee to make payment through banking channel and receive the same back by way of cash and obtain bogus purchase bills. It is also obvious that in the nature of business carried out by the assessee, 0.33% net profit declared by the assessee is too low and cannot be accepted. Further even if 24% of the turnover is estimated as the income of the assessee, the assessee should have earned net income of approx. Rs. 98,00,000/-. But in the case of the assessee it has only declared net profit of Rs. 1,33,921/-. Considering these facts and circumstances of the case and the report of the Investigation Department of the Revenue, we are of the considered view that the addition made by the Ld.AO for Rs.98,69,702/- is justifiable when there is a corroborative evidence from the records maintained by the vendors of the assessee that the purchases made by the assessee is bogus. It is also pertinent to mention that considering the facts and circumstances of the case the decisions cited and relied by the assessee are not relevant. Hence, we hereby confirm the order of the Ld.CIT(A) in the case of assessee.

In the result, the appeal of assessee is dismissed.