ACIT-19(3), MUMBAI, MUMBAI vs. STAR BRILLIAN, MUMBAI

Since all the issues involved in these cross appeals are common and identical and belong to the same assessee, hence, they have been clubbed, heard together, and a consolidated order is being passed for the sake of convenience and brevity. Firstly, we shall take ITA 8746/MUM/2025 for A.Y. 2007-08 as the lead case, and the facts narrated therein are being considered. The assessee has raised the following grounds of appeal:

The Learned Assessing Officer (AO) erred in facts and in law in reopening and assuming jurisdiction under section 147 of the Act beyond four years and learned CIT(A)-NFAC erred in upholding the validity of reopening without appreciating the following:

The learned assessing officer erred in passing the order u/s 143(3) r.w.s. 147 without issuing notice u/s 143(2) of the Income tax Act and hence the assessment is void ab initio

The learned AO erred in passing the assessment order after 31st March 2015 which is evident from the date of service printed on the income tax computation screen attached with the order is 05.04.2015 and hence time barred and order is bad in law.

The learned CIT(A) erred in sustaining an addition to the extent of 2% of the alleged transactions by disregarding the ITAT order in our own case in appeal numbers 1551 and 1552/Mum/2020 dated 15.03.2024 for assessment years 2009- 10 and 2013-14, wherein the ITAT confirmed the genuineness and deleted the entire addition on the same issue

Without prejudice to the above, the Learned CIT(A)-NFAC erred in facts and in law in partly sustaining the addition to the extent of the estimated rate of 2% of the alleged purchases of Rs. 7,44,51,213/- made during the year under consideration disregarding the documentary evidences submitted by the appellant.

The Learned CIT(A)-NFAC erred in facts and in law

The learned CIT(A)-NFAC erred in disregarding the documentary proof submitted by the assessee to show the genuineness of purchase including external evidences including confirmation / affidavits and other records from the alleged party from whom purchases are made and sustaining addition to the extent of 2% of alleged purchases based on surmises and conjectures.

Learned assessing officer and CIT(A)-NFAC erred in rejecting books off accounts u/s 143(3) without showing any error in the books of accounts.

Without prejudice to the above grounds of appeal the learned assessing officer and CIT(A), NFAC erred in not appreciating the fact that the assessee has traded in these goods and there cannot be any sales without the corresponding purchases.

The learned AO and CIT(A) NFAC erred in adding 2% of Rs. 8,19,145/- to the income without appreciating that the said purchases were not the assessee's purchases.

The learned CIT(A) erred in not providing any opportunity of person hearing to the appellant before passing the order sustaining partial addition.

The Learned Assessing Officer erred in levying Interest under section 234B of the Income tax Act without appreciating the fact that since no interest u/s 234B(1) is chargeable to the assessee as confirmed in the original scrutiny assessment u/s 143(3) and therefore no interest can be charged u/s 234B(3) of the Income tax Act in the assesse's case as held by Mumbai ITAT in the case of Datamatics Ltd. v/s ACIT 299 ITR(AT) 286 (Mumbai). Learned CIT(A)-NFAC erred in not considering and granting relief on this ground.

The learned assessing officer erred in initiating penalty u/s 271(1)(c). CIT(A) erred in not granting any relief inspite of the fact that the addition is sustained on estimation basis and therefore there is neither concealment nor furnishing of inappropriate particulars of income.

At the very outset, the Ld. AR raised Ground No. 4 raised by the assessee and submitted that it goes to the root of the case. Therefore, we have decided to adjudicate this ground first.

This ground raised by the assessee relates to challenging the order of the Ld. CIT(A) in sustaining the additions to the extent of 2 per cent of the alleged transactions. In this regard, reliance was placed on the ITAT's order in the assessee's own case in ITA Nos. 1551 and 1552/Mumbai/2020 dated 15.03.2024.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the case of the assessee was reopened on the ground that, as per the facts, search and survey action was conducted in the case of the Rajendra Jain Group, Sanjeev Choudhary Group, etc., on 03.10.2013 by the DGIT, Mumbai. It was found that various concerns were actually controlled by the Rajendra Jain Group and that the assessee had taken accommodation entries of purchases from the following parties, which are as follows:

Therefore, additions at the rate of 8 per cent of the bogus purchases were made, which were restricted to 2 per cent by the Ld. CIT(A). Aggrieved by the said order, both the assessee and the Revenue have filed their respective appeals. Therefore, it has now become imperative to consider the basis of the Ld. CIT(A) in restricting the additions to 2 per cent of the alleged bogus purchases. The operative portion of the order of the Ld. CIT(A) is contained in paragraphs 5.7.2 and 5.7.3 and the same is reproduced herein below:

After considering the decision of the Ld. CIT(A), and after hearing parties at length, we find that the Ld. CIT(A) restricted the additions to 2 per cent of the alleged bogus purchases by relying upon the decision of the Coordinate Bench of the ITAT in the assessee's own case in ITA No. 1551/Mumbai/2020 for AY 2009-10 and ITA No. 1552/Mumbai/2020 for AY 2013-14. However, our attention was drawn to the decisions of the Coordinate Bench of the ITAT in both the cases, i.e., ITA No. 1551/Mumbai/2020 for AY 2009-10 and ITA No. 1552/Mumbai/2020 for AY 2013-14. The operative portion of the same is contained in paragraphs 7 to 11 and the same is reproduced herein below:

We have carefully considered the rival contentions and perused the orders of the lower authorities. Assessee has not pressed the grounds of appeal with respect to the reopening of the assessment. Therefore, now the only issue that remains is whether the addition made by the learned Assessing Officer at the rate of 5% of alleged bogus purchases reduced by the learned CIT (A) at the rate of 3% is correct or not. It is found that assessee was directed by the co-ordinate bench to produce Mr. Rajendra Jain, before the learned Assessing Officer. The assessee has produced him before the learned Assessing Officer which is confirmed by the learned Assessing Officer. In his statement Mr. Rajendra Jain has categorically stated that his original statement given during the course of search has already been retracted by him and he stands by such retraction in the case of this assessee. Therefore, the original addition made by the learned Assessing Officer based on the statement of Mr. Rajendra Jain now does not stand. Now, the issue is to be examined independently of any admission or retraction made by Mr. Rajendra Jain. Admittedly, in this case, the assessee is exporter of diamond. The alleged purchases from the parties which are stated to be bogus by the learned Assessing Officer, assessee has produced their invoices, their permanent account number, their income tax returns, confirmation to show that purchases are genuine. Further, it is the claim of the assessee that whatever goods are purchased by the firm from these parties has been exported. Such export documents are verified and goods are also seer by the customs authority. Against such exports, assessee has already received foreign remittances and such sales are already taxed. The assessee has also demonstrated that the stock register has inward movement of goods of purchase from alleged bogus suppliers and outward movement of such goods as export of diamonds. The evidences produced by the assessee with respect to these partles were not investigated independently by the learned Assessing Officer. However, it is also the fact that the learned Assessing Officer in the remand proceedings issued summons to these parties remained unresponded. However, in view of such overwhelming evidences, only statement subsequently retracted of MR Jain could not be the sole reason of making an addition in the hands of the assessee. Honourable Bombay High court in Nitin Cylinders Ltd [2024] 159 taxmann.com 649 (Bombay) has held that Where Assessing Officer made an addition on account of bogus purchases solely on a statement made by only one party recorded under section 131 without adducing evidence of other necessary parties, Tribunal had was justified in deleting impugned addition. In this case, the learned Assessing Officer had made an addition at the rate of 5% of such purchases, which is directed by the learned CIT (A) to the extent of 3%. We do not find any reason to sustain these additions for the reason that the addition made based on statement of Mr. Rajendra Jain, which was retracted latter on and such retraction is confirmed in further statement before the learned Assessing Officer on the direction of the Tribunal. Further, the evidence submitted on purchase going into export and further details provided of sellers remaining uncontroverted, thus it shows that the addition is not required to be sustained. Accordingly, we reverse the orders of the lower authorities and direct the learned Assessing Officer to delete the impugned addition. Accordingly, the appeal of the assessee is partly allowed.

ITA No. 1552/Mum/2020, is filed by the assessee against the appellate order passed by the learned CIT (A) on 31st January, 2020, wherein the appeal filed by the assessee against the assessment order dated 28th March, 2016, passed by the learned Assessing Officer under Section 143(3) of the Act, wherein on alleged bogus purchases, the addition made by the learned Assessing Officer of 1,47,66,834/- at the rate of 5% of purchases was reduced by the learned CIT (A) at the rate of 3% of such purchases. The assessee is aggrieved and in appeal before us.

The assessee filed the original return of income on 1st October, 2013, at a total income of ₹91,71,238/- which was assessed under Section 143(3) of the Act on 28th March, 2016, at ₹2,39,38,073/-. On appeal, the learned CIT (A) retracted the addition to the extent of 3%.

The assessee is in appeal before us having identical facts. It is also stated by the learned Authorized Representative for A.Y. 2014-15 is also on identical facts and circumstances, where LD AO did not make any addition. Such assessment order dated 18/1/2023 passed u/s 147 144 and 144B of the Act was placed before us where in assessment of assessee was reopened to tax bogus purchases from same person of Rs 11.76 Cr, but in the end no addition was made. In that case, detailed show cause notice was issued and explanation of assessee was considered. In explanation of assessee, assessee submitted (1) statement showing purchases from those parties, (2) Copies of purchase invoices and corresponding sales invoices along with export bank statement and export documentation authenticated by customs authorities, (3) Copy of bank statements highlighting purchases paid, (5) Copy of stock register and purchase register, (6) copy of financial and audit report, (7) Affidavit and confirmation of sellers with extract of sales register. Ld AO there in has categorically mentioned that genuineness of transaction appears to be satisfactory despite case of the assessee was reopened wherein identical allegation of bogus purchases was made.

On careful perusal of the above facts and for identical reason as we have given in addition for A.Y. 2009-10, and specifically for the reason that in assessee's own case for AY 2014-15, the Id AO has also categorically accepted the genuineness of the transaction in reopened proceedings with identical allegations and not making any addition, we allow the appeal of the assessee for this year and direct the learned Assessing Officer to delete the addition. In the result, the appeal of the assessee for A.Y. 2013-14 is also allowed.

From the records, we noticed that, in fact, the Coordinate Bench of the ITAT, under an identical set of facts in ITA Nos. 1551 and 1552/Mumbai/2020, had directed the AO to delete the entire impugned additions and had not restricted the same to 2 per cent. The Ld. DR could not point out how the facts of AYs 2009-10 and 2013-14 are different from the facts of the present case and also could not rebut or controvert the findings of the ITAT.

Therefore, considering the totality of facts and circumstances as discussed above, and keeping in view the decision of the Coordinate Bench of the ITAT, as well as the doctrine of binding precedents and the need to maintain judicial consistency, we set aside and quash the order passed by the Ld. CIT(A) and direct the AO to delete the additions. Accordingly, this ground raised by the assessee is allowed.

In view of our findings with regard to Ground No. 4, the other grounds raised by the assessee become infructuous and, therefore, do not require separate adjudication.

Since we have already allowed the ground raised by the assessee, therefore, the appeal filed by the Revenue stands rejected.

In the result appeals filed by the assessee stands partly allowed and the appeals filed by the Revenue stands dismissed.