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Facts
The assessee, engaged in jewellery business, made purchases from certain parties identified as accommodation entry providers. The AO treated these purchases as non-genuine and added a gross profit of 8% to the income.
Held
The CIT(A) restricted the profit estimation from 8% to 3%, finding that only the profit element embedded in the alleged non-genuine purchases, not the entire value, could be taxed. The Tribunal upheld this decision.
Key Issues
Whether the addition on account of allegedly non-genuine purchases should be the entire purchase amount or only the estimated profit element, and at what rate.
Sections Cited
145(3), 250, 143(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI. ANIKESH BANERJEE & MISS. PADMAVATHY S
Per Anikesh Banerjee (JM): The instant appeal of the revenue was filed against the order of the National Faceless Appeal Centre (NFAC), Delhi [(for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) for assessment year 2013-14, date of order 13/06/2025. The impugned order was emanated from the order of the Ld. Income-tax Officer, Ward- 9(1)(1), Mumbai (for brevity, the “Ld. AO”), order passed u/s 143(3) of the Act, date of order 23/03/2016.
Amar Ghanasingh 2. The brief facts of the case are that the assessee was engaged in the business of manufacturing, buying, and selling jewellery under the name and style of M/s. Amar Ghanasingh. During the course of assessment, the Ld. AO observed that the assessee had entered into transactions with five parties aggregating to Rs.9,40,52,460/-. The Ld. AO held that these five parties were linked to the Banwarilal Jain Group, identified as accommodation entry providers, and therefore treated the entire transactions as non-genuine purchases in the books of the assessee. In support of his claim, the assessee furnished documentary evidence substantiating the genuineness of the purchases. However, the Ld. AO rejected the same and invoked the provisions of section 145(3) of the Act, thereby rejecting the books of account. The Ld. AO further presumed that the assessee had earned additional gross profit at the rate of 8% by procuring diamonds from the grey market, and accordingly made an addition of Rs.75,24,197/- being 8% of the alleged non-genuine purchases of Rs.9,40,52,460/-. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A). After considering the submissions and evidences produced, the Ld. CIT(A) restricted the profit estimation from 8% to 3%, thereby partly allowing the appeal of the assessee. Being dissatisfied with the relief granted, the revenue has preferred the present appeal before us.
The Ld.DR argued and stated that the Ld.CIT(A), without considering the fact and issue reduced the GP to @3%. He prayed to uphold the impugned assessment order.
The Ld.AR argued and filed a paper book containing pages 1 to 157, which is kept on record. During the assessment proceedings, the assessee submitted the details evidence related to books of account, especially, sales register, purchase Amar Ghanasingh register, invoices, bank transaction. The following documents were submitted before the Ld. AO by the letter dated 21/03/2016 which are also submitted before us in APB pages 65 to 167 as below:- a) Quantity details and hard copy of register. b) Details of purchase and corresponding sales. c) Copy of bank statement. d) Confirmation letter of the parties. e) Copy of sales-tax registration of the parties. f) Copy of final accounts of the parties; and g) Copy of ITR of the parties But the Ld.AO rejected the books of account u/s 145(3) and considered the GP @8% on the bogus purchases of Rs.9,40,52,460/- which comes to Rs.75,24,197/- which was added back with the total income of the assessee.
The Ld. AR further argued and invited our attention in impugned appellate order. The relevant part of appellate order from page 13 to 15 is reproduced as below:- “……………………... In its assessment order AO reproduced the copy of statement of Bhanwarlal Jain wherein the list of entities involved in bogus purchases were also confessed and it is found out of that list there were 5 entities with whom assessee dealt with and shown purchases to the tune of Rs. 9,40,52,460/-. AO added the profit element on this purchases @ 8% i.e 75,24,197/-. It is observed that books of the accounts of the assessee were not disturbed by the AO applying sec. 145 of the Act. That means the figure of sales and closing stock were duly accepted by the revenue. The only challenge is the authenticity of amount of purchases debited to the profit and loss account. I haven’t found any remarks of the AO on quantity and value of closing stock items. In view of above one thing is certain that assessee made sales and without purchase no sales can be made so the only question for consideration is that how much saving assessee has made while dealing with the entities controlled and managed by the Bhanwarlal Jain Group. In this connection, reference is invited to the decision of ITAT, Mumbai in the case of Trustar Diamonds Vs ACIT Amar Ghanasingh Circle 19(3) in & 1278/Mum/2023 dtd 23/10/2023 where in the following parties were involved Sl. No. Name of the hawala parties (Bhanwarlal Jain group) Bill amount 1 NAVKAR DIAMOND 1,16,37,795 2 MILAN & CO 2,57,81,882/- 3 MUKTI EXPORTS 57,28,882/- 4 PANAJ EXPORTS 38,09,510/- 5 NAVKAR DIAMOND 80,16,938/- 6 MOULI GEMS 23,90,960/- 7 AASTHA IMPEX 36,70,400/- 8 NAMAN EXPORTS 52,12,608/- TOTAL 6,62,48,443/- The party is in Sr No.1,3,5 are common, the ITAT has held as under:- 7 We have gone through the order of AD, order of the Ld.CIT (A) and submissions of the assessee along with grounds of appeal
raised by both the sides. It is observed that books of the accounts of the assessee were not disturbed by the AO applying sec. 145 of the act. That means the figure of sales and closing stock were duly accepted by the revenue. The only challenge is the authenticity of amount of purchases debited to the profit and loss account. We haven't found any remarks of the AD on quantity and value of closing stock items. As stated above, assessee is involved in the trading of diamond and doing the exports also of the same.
8. In view of above one thing is certain that assessee made sales in domestic and export market also and without purchase no sales can be made so the only question for our consideration is that how much saving assessee has made while dealing with the entities controlled and managed by the Bhanwarlal Jain Group. We have gone through the submissions of the assessee itself before the Ld.CIT(A) vide page no.6 of the Ld.CIT(A) order, para -5 where assessee confirmed that it's a regular pattern of making bogus purchases since A.Y. 2010-11, 2011-12 and 2014-15 wherein additions on bogus purchase were restricted to 3% of the bogus purchase made. A peculiar point to be noted in this matter is that, a subsequent A.Y. Le A.Y. 2014-15 Revenue itself in the assessment proceedings disallowed the bogus purchase to the extent of 3% only.
Amar Ghanasingh 9 In view of the above facts on record and following the principle of consistency we set aside the order of Ld.CIT (A) and directed the AD to made addition restricting upto 3% only, following the assessment orders of A.Y. 2010- 11, 2011-12 and subsequent A.Y. 2014-15. In view of this ground no. 2 raised by the assessee is allowed and rest of the grounds became academic and no specific adjudication is required.
5. We have carefully considered the rival submissions, perused the orders of the revenue authorities, and gone through the relevant material placed on record including the judicial precedents relied upon. The undisputed facts remain that the assessee is engaged in the business of manufacturing, buying, and selling of jewellery under the name and style of M/s. Amar Ghanasingh. The Ld. AO alleged that the assessee had made purchases from certain entities belonging to the Bhanwarlal Jain Group, identified as accommodation entry providers, and treated the entire purchases of Rs.9,40,52,460/- as non-genuine. Consequently, the Ld. AO estimated additional gross profit at the rate of 8% and made an addition of Rs.75,24,197/-. The Ld. CIT(A), after appreciating the detailed evidences filed by the assessee, including quantitative details, purchase and sales registers, bank statements, confirmations, sales-tax registration, and income-tax returns of the supplier parties, came to the conclusion that the sales and closing stock figures were duly accepted by the Ld. AO. The only dispute pertained to the authenticity of the purchases. The Ld. CIT(A) further observed that without corresponding purchases, the assessee could not have affected sales. Thus, only the profit element embedded in such alleged purchases could be brought to tax, not the entire purchase value. The Ld. CIT(A) rightly followed the coordinate Bench decision of the ITAT, Mumbai in the case of Trustar Diamonds v. ACIT (ITA Nos. 748 & 1278/Mum/2023 dated 23.10.2023), where in identical facts involving the very same Bhanwarlal Jain Group entities, the Tribunal held that the addition on account of bogus purchases should Amar Ghanasingh be restricted to 3% of the alleged purchase amount, in line with the principle of consistency and the pattern accepted in earlier and subsequent assessment years by the revenue itself. In the present case also, the Ld. CIT(A) adopted a similar approach and restricted the addition to 3% of the alleged bogus purchases. We find no perversity or infirmity in the order passed by the Ld. CIT(A). The revenue has not brought on record any fresh material to justify deviation from the settled judicial view or to establish that the estimation made by the Ld. CIT(A) was erroneous or contrary to facts. We therefore find ourselves in full agreement with the findings of the Ld. CIT(A), who has rightly applied the principle laid down in Trustar Diamonds (supra), wherein it has been consistently held that only the profit element embedded in such purchases can be added to income, and not the entire purchase value. Considering the entirety of facts, evidences, and judicial pronouncements, we hold that the order passed by the Ld. CIT(A) estimating the profit element at 3% of the alleged non-genuine purchases is fair, reasonable, and in accordance with law. We find no reason to interfere with the same. Accordingly, the appeal filed by the revenue stands dismissed.