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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals)- 3, Mumbai passed u/s 143(3) r.w.s 147 and 250 of the Act. The assessee has raised the following grounds of appeal:
1. The Ld. CIT(A) failed to appreciate that the Assessing Officer (hereinafter referred to as "the AO") erred in reopening assessment under section 147 on the basis of information / material which is vague, general, non-
M/s Sun Moon Enterprises, Mumbai. - 2 - specific and distant; having no live link or direct nexus between the material and the reasons recorded more so when the Appellants' matter was taken up for Scrutiny Assessment under section 143(2) and order was passed under section 143(3).
2 The Ld. CIT (A) failed to appreciate that the AO has erred in reopening assessment under section 147 which is evident clearly that the AO did not independently apply his mind to the information received from the DGIT (Inv.) and also did not make any independent enquiry to arrive at a belief whether or not any income had escaped assessment.
3 The Ld. CIT(A) failed to appreciate that the assumption of jurisdiction by the AO was bad in law as the mandatory requirements of Section 147 were not satisfied.
4 The Ld. CIT (A) failed to appreciate that the AO has erred in law by not passing a reasoned order for disposing of objection of the Appellant for reopening the assessment under section 147 before proceeding with the reassessment.
5 The Ld. CIT (A) failed to appreciate that the AO has erred in law by not providing the documents being statements of the suppliers as alleged by the Ld. AO nor accorded cross- examination of them despite written applications been made for the same thereby.
6 The Ld. CIT(A) failed to appreciate that the AO also erred in not informing his proposed action to make an ad-hoc addition without pin-pointing the defects in the books of accounts / rejecting the books of accounts, which were already accepted by the AO at the time of earlier scrutiny assessment and thus not according any opportunity to the appellant to put its case and make submissions.
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7 The Ld. CIT(A) also failed to appreciate that the AO erred in taking Gross Profit rate of 8% for addition to the income by applying BAP and taking the profit margin as 8%. The report of the Task Group for Diamond Sector, Government of India, Ministry and Commerce and Industry, Department of Commerce released in February, 2013 states that the actual net profit in diamond trading is in the range of 1-3%.
8 The Ld. CIT-A erred in appreciating that despite submitting all the possible evidences to prove the genuineness of purchases alleged to be bogus, including even the Affidavit from the alleged supplier, the AO disregarding all such cogent evidences and merely on the statements of third party (which too were retracted, thus having no evidential value) and purely on conjectures and surmises made additions @ 8% of alleged bogus purchases made from a supplier and thus confirming Addition to the tune of Rs.7,68,485/- to the income calculated @ 8% of Value of Purchases treating purchases though genuine but purchase bill as accommodation entry.
9 The Ld. CIT-A also erred in not taking into consideration the Jurisdictional High Court Judgments on similar matters and also not considering the Additional Evidences given to substantiate the Appellant's case.
The brief facts of the case are that the assessee is engaged in the business of trading in diamonds. The assessee has filed the return of income for the A.Y 2007-08 on 15.11.2007 disclosing a total income of Rs. 20,82,203/- and the return of income was processed u/s 143(1) of the Act. A survey action conducted in the M/s Sun Moon Enterprises, Mumbai. - 4 - case of Shri Bhanwarlal Jain Group. The A.O. received the information from the DGIT(Inv), Mumbai that the assessee has obtained bogus purchases bills from M/s Little Diam of Rs.96,06,064. Therefore the Assessing Officer (AO) has reason to believe that the income has escaped assessment and issued notice u/s 148 of the Act. The assessee has filed the objections and the objections were disposed off by the AO. Subsequently the notice u/s 143(2) and 142(1) of the Act was issued. The AO has dealt exhaustively on the details, facts and modus operandi of entry provider in obtaining bogus purchase bills and estimated GP/margin@8% of Rs.96,06,064/- which works out to Rs.7,68,485/-and assessed the total income of Rs.28,50,790/- and passed the order u/s 143(3) r.w.s 147 of the Act dated 23.03.2015.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A).Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the A.O but concord with the action of the AO and dismissed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal.
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The assessee has raised the various grounds of appeal before the Tribunal, whereas the Ld.AR of the assessee has pressed only the grounds of appeal pertaining to the addition confirmed by the CIT(A)@ 8% which is on the higher side. The Ld. AR submitted that the addition made by applying BAP taking the profit margin @ 8% is above the bench mark of the business/industry and whereas the actual profit range in diamond trading is between the 1% to 3%. The Ld. AR substantiated the submissions with the judicial decisions and the paper book and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A).
5. We heard the rival submissions and perused the material on record. Prima-facie the contentions of the Ld.AR that the addition made by the AO @ 8% based on the BAP is on higher side and whereas the profit margin in diamond business is between 1% to 3%. The Ld.AR emphasized that the assessee has substantiated with factual information on the genuineness of the transactions with the lower authorities. The Ld. AR referred to the judicial decisions where the addition is sustained@3%.Weconsidering the facts, circumstances,
M/s Sun Moon Enterprises, Mumbai. - 6 - judicial decisions and to meet the ends of justice restrict the addition @ 3% as against 8%. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to estimate the income@3% on unapproved/ bogus purchases and partly allow the grounds of appeal of the assessee.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 29.08.2022.