SANTOSHSINGH HUKUMSINGH KARNAWAT,,SURAT vs. THE INCOME TAX OFFICER, WARD-2(3)(8),, SURAT

आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal by the Assessee is directed against the order of learned Commissioner of Income tax (Appeals)-2, Surat (in short “the CIT (A)”) dated 21.09.2016 pertaining to Assessment Year 2012-13, which in turn has arisen from the order dated 26.03.2015 passed by the Income Tax Officer, Ward- 2(3)(8) Surat (in short “the AO” ) under section 143 (3) of Income Tax Act,1961 ( in short ‘the Act’).

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these parties. It was further submitted that the transaction was routed through banking channel. The assessee has made total purchases of Rs. 1.73 crores including purchases of Rs. 1.11 crores from above parties during the year under consideration as against which the assessee has made sales of Rs.1.71 crores. However, the AO has observed that Shri Bhanwarlal M. Jain in his statement recorded under section 132(4) on 11.10.2013 has stated that he has floated various dummy concerns who are providing accommodation entries. The AO observed that investigation made by Investigation Wing, Mumbai has also revealed that actual importers of diamonds imports part of their diamond requirements through benami entities operated by the Shri Bhanwarlal M. Jain and family. In view of this, the AO treated the purchases of Rs.1,11,61,150/- made from above two parties as bogus and made addition of said amount to the total income of the assessee.

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the genuineness of the transactions. The CIT (A) observed that the main thrust of the assessee is on that the payments has been made through banking channel by account payee cheques and parties have filed confirmation along with their return of income. The appellant has also contended that Shri Bhanwarlal M. Jain had retracted his statement on oath given before Investigation Wing. However, CIT (A) observed that the perusal of details and search action was conducted in the case of Shri Bhanwarlal M. Jain wherein various evidences were found which led to admission under section 132(4) by Shri Bhanwarlal M. Jain that he was in the business of accommodation entries. In view of these facts and circumstances, after relying on some of case laws, the CIT (A) upheld the action of the AO in treating the purchases as bogus. 5. Being, aggrieved the assessee filed this appeal before the Tribunal. The ld. Counsel submitted that during the course of assessment proceedings the assessee has submitted details of purchases along with copy of purchase bills, details of opening and closing stock, copy of bank statement, details of sundry debtors and creditors. During the course of appellate proceedings, the assessee has submitted copy of ledger account, copy of bank statement, acknowledgement of return of income filed. It was further submitted that both the parties have been registered with VAT Department. The purchases have been duly incorporated in stock register and purchases of Rs.67,77,719/- made from M/s. Little Diam were exported to M/s. Lukhi Diam , B.V.B.A of

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Belgium for which expert document were filed. The goods purchased from M/s. Euro Diam were sold locally. In case of bogus purchases, normally sellers withdraws cash immediately after issue of cheques, whereas this is not the case of seller as could be seen from bank statement. Therefore, modus operandi adopted in bogus purchases is not proved by the AO. Therefore, the AO was not justified in making disallowance by treating these as bogus purchases. It was further submitted that Shri Bhanwarlal M. Jain is neither proprietor nor signatory in both the concerns from whom the assessee has effected purchases. Therefore, there is no legal validity of statement given by Shri Bhanwarlal M. Jain, which is being a third party. It was further submitted that Shri Bhanwarlal M. Jain has filed a retraction statement before the CBDT, therefore, said retracted statement cannot be used against the assessee. Further, the copy of statement of Shri Bhanwarlal M. Jain was not made available to the assessee. Therefore, no addition can be made merely on the basis of the allegation that the above third party has admitted that bills provided was merely accommodation bills as held by Hon'ble Gujarat High Court in the case of ACIT vs Akruti Dyeing and printing Mills Pvt. Ltd (Tax Appeal No.997/2008 dated 27.01.2009) and Kishanchand Chellaram v. CIT [1980] 125 ITR 713 (SC) [1980] 4 Taxman 29 (SC). The ld. Counsel further contended that no cross-examination of the parties of whom statement has been used against the assessee has been allowed by the AO. Therefore, there is a violation of principle of natural justice, hence, the credence of the

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statement of Shri Bhanwarlal M. Jain amounts to serious flaw and makes assessment impugned order nullity as held by the Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 241(SC). During the course of assessment proceedings, the AO has called for information under section 133(6) from the above two parties who have duly complied with, hence, said parties cannot be said as bogus concerns. The learned counsel for the assessee relying on the decision of Hon`ble Gujarat High Court in the case of CIT v. M K Brothers [1987] 30 Taxman 547 (Guj) /[1987] 163 ITR 249 (Guj) submitted that it was held that there was no evidence anywhere that those concerns give bogus vouchers to the assessee and further there was nothing to indicate that any part of fund given by the assessee to those parties came back to the assessee in any form. In such circumstances, it was held that the evidence was not adequate to conclude that purchases were bogus and therefore, the addition deleted by the Tribunal was upheld. In the case of the assessee also, there is no evidence to show that the assessee has given any fund to seller, which has came back to the assessee in any form. 6. The ld. Counsel further placed reliance on the decision of Co- ordinate Bench of Surat Tribunal in the case of Sudeep M Shah v. ITO [I.T.A.No. 2423/Ahd/2016 dtd. 29.05.2018] and M/s. Deluxe Diamonds Pvt. Ltd. v. ITO [I.T.A.No. 1396/Ahd/2017 dtd. 11.04.2018] wherein relying on the judgement of Hon’ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd. vs. ITO (Tax Appeal No. 200/2003 dated

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07.11.2014) the addition made by the AO on account of bogus purchases was restricted to 5 % of bogus purchases considering the average of diamond industry. However, these decisions of Tribunal is distinguishable in the case of the assessee as in these cases notice under section 133(6) issued was returned back un-served whereas in the case of the notice under section 133(6) were duly served and replied as could be seen from the assessment order. Therefore, it was urged upon us that total addition made may be deleted.

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copies of his statement was not made available to the assessee during the course of assessment proceedings nor any cross-examination was allowed. Therefore, the violation of not allowing cross examination to the assessee as held in the case of Andaman Timber Industries v. Commissioner of Central Excise Kolkata-II [2015] 13 STD 805 (SC) ( Civil Appeal No. 4228 of 2006) dated September, 2, 2015. (SC) which supports the case of the assessee. The assessee has duly produced the copies of bills, ledger account and bank statement and acknowledgement of return and payments is made by account payee cheques. It is obvious that there cannot be any sales without purchases. The book results of the assessee are in line with book results of earlier years. The books of accounts are audited under section 44AB of the Act and no adverse comments pointed out by the auditors. Quantity records are maintained. The sales of Rs. 67,77,719 made from M/s. Little Diam have been exported to M/s. Lukhi Diam, B.V.B.A. of Belgium of which copy of expert document was also filed. There is no evidence that cash received back except statement of Shri Bhanwarlal M. Jain, which is general in nature and same was also not made available to the assessee. This shows that purchases have been made, but may be not from the party from whom purchases bills have been obtained. The only possibility is therefore, is that the assessee might have inflated the purchases, as sale has not been doubted by the AO. In view of this matter, it is not just or reasonable to treat entire purchases when corresponding sales has not been doubted by the AO. There cannot be

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any sales without making purchases. We are, therefore, of the view that it is a simple logic that when the AO has not questioned the sales /stock then there is no logic to disallow the 100% bogus purchases. It is obvious that there cannot be any sales without purchases. The Co-ordinate Bench of the Tribunals in the case of Sudeep M Shah (supra) and M/s. Deluxe Diamonds Pvt. Ltd. (supra) in their decisions have restricted the disallowance to 5% of total bogus purchases.

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lower. Gross profit rate of 5% is the average rate of the industry and we think it fit to make addition on account of 5% gross profit rate. The addition be made accordingly. We therefore, answer the question raised in the negative i.e. against the revenue and in favour of the assessee.”