H DINESH & CO.,MUMBAI vs. ACIT-19(1), MUMBAI

These appeals in & 925/Mum/2022 for A.Y.2012-13 & 2014-15 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.CIT(A)-30, Mumbai/10486/2017-18 & CIT(A)-30, Mumbai/10556/2017-18 dated 11/03/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.153C r.w.s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2017 by the ld. Asst. Commissioner of Income Tax, Circle 19(1), Mumbai (hereinafter referred to as ld. AO).

Though the assessee has raised several grounds of appeal before us, the only effective issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in restricting the disallowance made on account of bogus purchases at 12.5% as against 100% made by the ld. AO in the facts and circumstances of the instant case.

We have heard rival submissions and perused the materials available on record. We find that assessee is a partnership firm engaged in trading and processing of diamonds. Pursuant to the search conducted u/s.132 of the Act in the case of one Shri Nashabhai Laxmibhai Dhabhi on 02/11/2015, proceedings u/s.153C of the Act were initiated on the assessee. The validity of assumption of jurisdiction of the ld. AO u/s.153C of the Act is not in challenge before us. In the proceedings u/s.153C of the Act, the ld. AO observed that assessee had made purchases from M/s. Rose Impex and M/s. Little Diam amounting to Rs.33,65,631/- and Rs.33,12,511/- respectively. According to ld. AO, these concerns belong to Bhanwarlal Jain Group. Since assessee has made purchases from the aforesaid two concerns who have been characterised as tainted parties by the Income Tax department, the ld. AO sought to examine the veracity of the purchases made from the aforesaid parties. The assessee submitted the purchase bills of the suppliers wherein the delivery and receipt of goods were acknowledged on the bills itself, invoices of corresponding export sales of polished diamonds, copies of purchase register, sales register, stock register, copies of bank statements of the assessee reflecting the diamonds made to aforesaid suppliers by account payee cheque, copy of bank statements of the suppliers reflecting the payments received by them from the assessee, confirmation from suppliers that they had supplied the goods to assessee together with PAN Card and ITR acknowledgement, statement showing the details of purchases with corresponding sales, copy of ledger account of Rose Impex and Little Diam as appearing in the books of assessee and copy of full set of export documents before the ld. AO. The ld. AO however, disregarded the entire documentation submitted by the assessee and preceded to disallow 100% value of purchases being bought from tainted parties. The ld. CIT(A) however, appreciated the contentions of the assessee and observed that since the sales made by the assessee is not doubted out of the disputed purchases, only the profit element embedded thereon could be brought to tax. This profit element was estimated to be at 12.5% by the ld. CIT(A) by placing reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth reported in 38 taxmann.com 385 among other decisions. Accordingly, the ld. CIT(A) restricted the disallowance at 12.5% of disputed purchases and arrived at the disallowance figure of Rs.8,34,768/-. Aggrieved by this order, the Revenue is in appeal before us and only the assessee has preferred appeal.

In the result, both the appeals of the assessee are partly allowed.