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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
The assessee has filed this appeal challenging the order passed by Learned Commissioner of income tax (Appeals), National Faceless Appeal Centre, Delhi and it relates to the assessment year 2014-15. The assessee is aggrieved by the decision of the Ld CIT(A) in confirming the addition relating to alleged bogus purchases.
The facts relating to the case are stated in brief. The assessee is engaged in the business of manufacturing, import and export of diamond studded gold and platinum jewellery & plain gold jewellery. During the course of assessment proceedings, it was noticed by the AO that the assessee has purchased diamonds for an amount of Rs.2.26 crores from a concern named M/s. Mayur Exports, which belonged to M/s Bhanwarlal Jain group. The revenue has conducted search action in the hands of M/s. Bhanwarlal Jain group and found out that this group is engaged in providing accommodation sales bills, without actually supplying the goods. Based on this information, the AO took the view that the purchases made from M/s Mayur Exports are bogus in nature. However, the AO took the view that the profit element embedded therein should be assessed in the hands of the assessee. Accordingly, he estimated the profit embedded in the above said purchases at the rate of 9% of the value of alleged bogus purchases, which worked out to ₹ 20,34,753/-. It is pertinent to note that the assessee was eligible for deduction u/s 10AA of the Act @ 50% during this year, since the assessee is located in SEZ. The AO allowed deduction under section 10AA of the Act in respect of the above said addition also. The Ld. CIT(A) also confirmed the addition and hence the assessee has filed this appeal before us.
The Learned AR submitted that the assessee is located in SEZ and hence all the purchases made by the assessee are required to be inspected and certified by the Ministry of commerce and industry, Government of India. The Ld AR submitted that all the purchases of diamonds made from M/s Mayur exports have been inspected and approved by the Ministry of commerce and industry. Accordingly the Ld AR submitted that the genuineness of purchases made by the assessee from M/s Mayur exports would stand proved by the certificate given Ministry of commerce and industry. The Ld AR further submitted that the assessing officer has made the addition without verifying these pertinent facts and the AO has relied upon the general allegations made in the hands of M/s Bhanwarlal Jain. The Ld AR further placed reliance on the decision dated 07-07-2021 passed by the co-ordinate bench in the case of M/s K’s Jewellery and Co (ITA No. 7509/Mum/2019 and others) and submitted that the Tribunal has deleted an identical addition made on identical set of facts.
The learned DR, on the contrary, support the order passed by Learned CIT (A).
We heard rival contentions and perused the record. We noticed that the assessing officer has made the impugned addition on the basis of generalised information given by investigation wing that M/s Bhanwarlal Jain group is engaged in the business of providing accommodation sales bills without actually supplying the goods. There is no material on record to show that the impugned purchases made by the assessee from M/s Mayur Exports were identified as bogus or part of accommodation bills. On the contrary, it is the submission of the assessee that the diamonds were actually purchased from M/s Mayur Exports, which stood proved by the fact that the said purchases have been verified by the Government Authorities placed at SEZ, where the assessee is located. The Ld A.R invited our attention to copies of few bills and we noticed that the said bills contain the stamp of Government officials’ for having verified the goods and their Certificate is affixed on each of the bills. The said seal contain a Serial number and date and further the Preventive Officer signs the bills with certification “Accepted the Declaration passed in (01) Sealed to Unit”. We noticed that the fact that the goods were subjected to verification by the Government officials has not been taken note of by the tax authorities. Thus the movement of goods from M/s Mayur Exports to the assessee could not be doubted with. It is pertinent to note that the AO has not brought any material on record to show that the assessee could have purchased the goods from persons other than M/s Mayur Exports in support of the bills received from M/s Mayur Exports. In the absence of materials in support of this presumption, the same cannot be accepted.
6. Further, the assessee has furnished copy of confirmation letters given by M/s Mayur Exports for the supply of goods and receipt of payments. The payments for the above said purchases have been routed through the banking channels.
We noticed that, on identical set of facts, the coordinate bench has deleted the addition made in the hands of M/s K’s jewellery and Co (supra).
For the sake of convenience, we extract below the relevant discussions made and decision taken by the co-ordinate bench in the above said case:-
“5. We find that the assessee firm is engaged as manufacturer exporter of diamond/stone studded jewellery. The assessee is a 100% Export Oriented Unit (EOU) situated in a SEZ. As per the extant rules/regulations, all the local purchases made by the assessee would be deemed imports. All such purchases to be made by the assessee have to follow strict procedure as laid down in SEZ rules and regulations. This procedure has elaborately been given by the assessee in its submissions during appellate proceedings. The same has also been noted by us in preceding para 3.2. Upon perusal of the same, it could be seen that the assessee could not purchase the material directly from the local vendor rather the purchases had to following specific procedure as per the rules. We find that the assessee has purchased loose diamonds from M/s Sun Diam which has been used in making the jewellery. The proposed quantity of cut & polished diamonds as required by the assessee would first be intimated to Superintendent of Customs along with the proforma invoice of the supplier party showing therein the complete details of quality, quantity and value. Against this intimation, the Superintendent of Customs would issue a certificate of procurement and movement of imported goods/excisable good without payment of duty. A copy of the same is on record. Upon perusal of the same (page 85 of the paper-book), it could be gathered that this certificate is issued for particular invoice number detailing therein the description of goods as well as quantity of the goods proposed to be purchased by the assessee. For the said purpose, the assessee has executed prescribed bond of Rs.46.01 Lacs as surety which is mentioned on all such certificates. A copy of this certificate is forwarded to Deputy Commissioner of Customs. Thereafter, the supplier would take the consignment along with related invoice to the said authority for complete verification and appraisal of quality, quantity and value of the consignment. The sample copy of invoice as raised by the supplier (placed on page no.86 of the paper- book) would reveal that that the invoice contains complete description of various varieties of diamond along with their respective rates etc. The invoice also contains IEC number of the supplier, VAT/CST registration as well as Income Tax Permanent Account number of the supplier. The invoice also bears the requisite declarations as required as per extant rules and regulations. Thereafter, the consignment is delivered by the supplier to the custom authorities who would inspect, verify and appraise the consignment and would stamp and seal the consignment. Simultaneously, the invoice would also be stamped and endorsed by the custom authorities, the entry of which would also be made in the customs register. One copy of this stamped invoice would be handed over by supplier to the assessee, on the basis of which the delivery of goods would be given to assessee by the preventive officer in the office of Deputy Commissioner of Customs at DPCC (Diamond Plaza Clearing Centre). The delivery of sealed consignment would be taken against the procurement certificate as well as stamped-cum-endorsed invoice. Pertinently, the delivery of the goods/consignment is only and only given to the Preventive Officer in charge who would make an entry in his register and deliver the possession of the goods in assessee's factory premises only. All such deemed imports made by assessee has to be then fully and completely accounted for in terms of its consumption/end-use in the manufacturing of jewellery which is exported by the assessee. In other words, at the time of export of a particular consignment of jewellery, the quantity and the quality of the diamonds has to be co-related and accounted for with the custom authorities as to from which lot of deemed import the said diamonds have been used/consumed. The custom officer after satisfying himself fully would endorse under his seal and signature assessee's respective export invoice(s) and also on the end-use certificate showing the complete details therein, only after which the goods would be eligible for export to overseas buyers. The perusal of sample copy of end- use certificate (page 84 of paper-book) would reveal that this would contain import quantity of cut & polished diamonds, export invoice number & date, shipping bill number & date and would certify that the goods have been fully utilized in the manufacture of studded jewellery and also the fact that said manufactured goods have ultimately been exported by the assessee. Similar documents have been placed on record for all the consignment procured by the assessee from M/s Sun Diam.
Upon perusal of all these facts as well documents, it could very well be said that the purchases made by the assessee was to undergo strict rules & regulations as well as verification by customs authorities. Not only this, the utilization of the same while exporting the goods was also to be demonstrated by the assessee. There is complete one-to-one co- relation of the purchases vis-à-vis diamonds utilized in exports made by the assessee. The documentary evidences as furnished by the assessee as elaborated by us in para-5 duly support the said propositions.”
Accordingly, following the above said decision of the co-ordinate bench, we hold that the impugned addition made alleging bogus purchases could not be sustained. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition relating to purchases made from M/s Mayur Exports.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 06.09.2022.