DCTI 19 1 MUMBAI, MUMBAI vs. D MANISH AND COMPANY, MUMBAI

The details of the alleged purchases from the said parties, along with the corresponding amounts, were set out in the assessment order and are required to be reproduced verbatim. The same are, therefore, left blank here to be incorporated in the final order. Sr. No. Name of Seller Amount (Rs.) 1. Prime Star 56,28,500 2. Mohit Enterprises 2,09,95,772 3. Mayur Exports 2,09,46,654 4. Jewel Diam 79,54,245 5. Millenium Stars 2,01,32,835 6. Daksh Diamonds 91,03,236 Total 8,47,61,242

In the assessment order, the Assessing Officer has largely reproduced the information received from the Investigation Wing and the statements recorded during the course of search proceedings in the case of third parties. However, despite the assessee having filed detailed replies D Manish And Company and voluminous documentary evidence in support of the purchases, the Assessing Officer did not undertake any independent enquiry, nor did he point out any specific defect in the books of account, stock records or documentary evidence furnished. Without dealing with the assessee’s explanations in a meaningful manner, he proceeded to treat the entire purchases of ₹8,47,61,242 as unexplained expenditure under section 69C.

In appeal, the learned CIT(A) considered the submissions of the assessee and took note of judicial precedents, including the decision of the Tribunal in Leelaben Kantilal Parekh and the judgment of the Hon’ble Bombay High Court in Paramshakti Distributors Pvt. Ltd. Following the said decisions, the learned CIT(A) held that where the purchases are not fully verifiable, only the profit element embedded therein can be brought to tax, and accordingly restricted the addition to ten percent of the disputed purchases.

We have carefully considered the rival submissions and perused the material available on record. It is evident that during the course of assessment proceedings, the assessee had furnished exhaustive documentary evidence in support of the purchases. These included copies of purchase invoices issued by the impugned parties, quantitative details of purchases and sales, stock register for the relevant financial year, bank statements evidencing payment through banking channels, export invoices, shipping bills and export realization documents, confirmations of accounts from the D Manish And Company suppliers and affidavits from each of the parties affirming the sale and delivery of diamonds to the assessee along with invoice wise details of quantities and amounts. These documents were placed on record and form part of the paper book.

It was also specifically pointed out that in the assessee’s own case for assessment year 2010–11, on identical facts involving the same nature of allegations, the Tribunal had restricted the addition to three percent of the alleged purchases. Similarly, for assessment year 2013–14, the D Manish And Company learned CIT(A) had adopted a comparable approach. Despite these submissions, the Assessing Officer neither distinguished the earlier orders nor brought on record any fresh material to justify a departure from the settled position.

A perusal of the assessment order clearly shows that the Assessing Officer has not rejected the books of account under section 145. The stock register has been accepted. The quantitative tally of purchases and corresponding export sales has not been disputed. The payments for the purchases have been made through banking channels and no evidence has been brought on record to show that the payments were returned to the assessee in cash or otherwise. Once the consumption of goods is accepted and the resultant sales, particularly export sales, are also accepted, the logical corollary is that the purchases cannot be treated as entirely non-existent.

The affidavits filed by the suppliers confirming the sale and delivery of goods to the assessee have also not been controverted by the Assessing Officer. No cross examination has been carried out, nor has any material been placed on record to discredit the contents of the affidavits. In the absence of any rebuttal, such affidavits carry evidentiary value and cannot be brushed aside merely on the basis of third party information.

The learned Departmental Representative relied upon the judgment of the Hon’ble Bombay High Court in the case of D Manish And Company PCIT vs Kanak Impex India Pvt. Ltd. However, the facts of that case are clearly distinguishable. In that case, the assessee had failed to produce any supporting evidence, had not participated meaningfully in the assessment proceedings and the finding of bogus purchases had attained finality. In the present case, the assessee has consistently maintained the genuineness of the purchases and has supported its claim with documentary evidence, quantitative records and confirmations.

In the light of the facts on record, we find that even the estimation of gross profit by the learned CIT(A) does not rest on a sound footing. Where the purchases are duly recorded in the books, the quantities are reconciled with sales, the exports are accepted and the parties have confirmed the transactions, there remains no justification to sustain any addition merely on the basis of suspicion or general information. Income tax proceedings, though not governed by strict rules of evidence, must nevertheless be founded on material and reasoned analysis, and not on conjectures or presumptions.

Taking an overall view of the matter, we are of the considered opinion that the addition made by the Assessing Officer and partly sustained by the learned CIT(A) is not sustainable either on facts or in law. The entire addition on account of alleged bogus purchases is therefore liable to be deleted.

In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed.