SEVEN JEWELS,MUMBAI vs. ACIT WARD-19 (3) (3) , MUMBAI

In this appeal, the assessee has raised the following grounds:–

It is submitted that appellant had purchased cut and polished diamonds from the aforesaid party in normal course of its business. Appellant had furnished full and complete details of purchases. M/s. Artview Gems Private Limited had also confirmed the genuineness of transaction in response to Notice under Section 133(6) of the Act. The additions are based on presumptions and surmises and is bad in law and ought to be deleted.”

The brief facts of the case pertaining to this issue as emanating from the record are: The assessee is a firm engaged in the business of manufacturing of jewellery. During the year under consideration, the assessee purchased diamonds from various entities for manufacturing of jewellery. During the course of assessment proceedings, the Assessing Officer (hereinafter referred to as “the AO”), in order to verify the sundry creditors, issued summons and commission under section 131 of the Act in respect of certain entities. Out of these entities, one M/s. Artview Gems Pvt. Ltd., was based out of Surat. Accordingly, commission under section 131 of the Act was issued to the AO of the said entity in Surat. The AO of the said entity informed that the concerned officer was unable to serve the summons

In appeal, the CIT(A), affirmed the order passed by the A.O.

During the course of hearing, Shri Nitish Joshi, learned counsel, appearing for the assessee, by referring to the documents forming part of Seven Jewels ITA no.1428/Mum./2021 the paper book, submitted that the pre–condition for application of provisions of section 69C of the Act is not satisfied in the present case, as the assessee had sufficient funds for incurring the expenditure while purchasing the diamonds from M/s. Artview Gems Pvt. Ltd. The learned counsel further submitted that the AO did not consider various documents filed by M/s. Artview Gems Pvt. Ltd., sufficiently proving the existence of the said entity and the genuineness of transaction with the assessee. The learned counsel also submitted that the AO has not objected to similar purchase transactions from other entities.

On the other hand, Shri C.D. Mathews, learned Departmental Representative (hereinafter referred to as “learned DR”), appearing for the Revenue, vehemently relied upon the orders passed by the AO and the CIT(A).

We have considered the rival submissions and perused the material available on record. In the present case, the assessee being in the business of manufacturing of jewellery required cut and polished diamonds as an essential material. The assessee purchased the diamonds from various entities as is evident from extracts of stock register of the assessee forming part of the paper book. The A.O doubting the existence of only one entity, i.e. M/s. Artview Gems Pvt. Ltd., held that the purchase of cut and polished diamonds by the assessee to be a bogus transaction and added the entire expenditure pertaining to the said transaction, i.e. Rs.87,26,922, under section 69C of the Act. In order to decide the issue arising in this appeal, it

Thus, as per the provisions of section 69C of the Act, in case the assessee fails to explain the source of expenditure or part thereof to the satisfaction of the AO, such expenditure shall be considered as unexplained expenditure and be deemed to be income of the assessee. In the present case, the assessee made the payments of Rs.43,97,377, on 10th March 2015 and Rs. 43,29,549, on 18th March 2015, to M/s. Artview Gems Pvt. Ltd. in respect of the diamonds purchased by the assessee. From the statement of account of the assessee issued by the HDFC Bank, a copy of which is placed at Page–27 of the paper book, it is evident that the assessee availed loans of Rs. 45,00,000 on 10th March 2015 and Rs. 60,50,000 on 18th March 2015. The documents of loans sanctioned by Merrill Lynch Wealth Management to the assessee are placed at Pages–41 & 45 of the paper book. From the aforesaid factual details forming part of the paper book, which have also not been denied by the learned DR, it is evident that sufficient funds were available with the assessee for making the payment to M/s. Artview Gems

Further regarding the apprehension / allegation of the AO that M/s. Artview Gems Pvt. Ltd., is not a genuine entity, the AO neither discussed nor denied the submission dated 24th November 2017, filed by the entity before the AO at Mumbai, wherein the return of income for the assessment year 2015–16 of the said entity, copy of ledger account of the assessee as well as PAN details of the entity were furnished. It is pertinent to note that the AO on one hand doubted the existence of M/s. Artview Gems Pvt. Ltd. while on the other hand in its show cause notice dated 20th December 2017, which is extracted in the assessment order, notes that “the said party has left the place some 2–3 years back”. Thus, from the above, it is evident that the AO also has not denied the existence of said entity during the assessment year under consideration. Another basis of the AO to disallow the expenditure that caratage, clarity and colour were not mentioned in the invoice raised by M/s. Artview Gems Pvt. Ltd. also appears to be mere presumption, as the AO has not referred to any document of third-party having mention of such factors in transaction of purchase of diamonds. In view of the above findings, we find no reason to sustain the addition of Rs. 87,26,922, made by the AO and confirmed by the CIT(A), and least under section 69C of the Act. Accordingly, the grounds raised by the assessee are allowed.

In the result, the appeal by the assessee is allowed in terms of our aforesaid findings.