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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SMT P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order dated 16/06/2017 of CIT(A) – 4, Hyderabad for AY 2012-13.
Briefly the facts of the case are, assessee company, engaged in jewellery business, filed its return of income for the AY 2012-13 on 15/09/2012 admitting income of Rs. 2,00,34,421/-, which was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’). Subsequently, the case was selected for scrutiny under CASS. Accordingly, statutory notices were issued and served on the assessee.
2.1 A search and seizure operation u/s.132 of the Income Tax Act, 1961 in the case of Banwarlal Jain Group, a leading entry provider of Mumbai, was carried out by the Investigating Wing, Mumbai on 03/10/2013. As per the sworn statement given regarding beneficiaries
2 ITA No. 1499/Hyd/17 Musaddilals Jewellers (India) Pvt. Ltd. of accommodation entries pertaining to Bogus Purchases by Ms. Banwarlal Jain Group, which is communicated to AO vide DIT(1nv)-lI, Hyderabad. It was noted from the information received that, the assessee-company made bogus purchases amounting to Rs.15,72,350/- from M/s. Euro Diam and Rs. 1,17,810/- from M/s. Megha Gems, being benami concerns operated and managed by Bhanwarlal Jain, during the FY 2011-12 relevant to the AY under consideration. In order to know the genuineness of above transactions and opportunity to the assessee-company, the AO issued summons u/s. 131 of the Act, 1961, and duly served on the assessee. A sworn statement of Sri Ananth Gupta, Director of the assessee company was recorded under oath on 12.03.2015, the contents of which were extracted by the AO in his order at page 2 & 3. According to AO, assessee failed to substantiate the said purchase transactions to be genuine, he, therefore, treated the same as bogus purchases and made addition of Rs. 16,90,160/- (15,72,350 + 1,17,810 purchased from Euro Diam and Megha Gems respectively.)
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A).
Before the CIT(A), the assessee stated that the diamonds were purchased from M/ s. Euro Diam at Rs.15,72,350/ - and from M/s. Megha Gems at Rs.1,17,810/-. In this connection the assessee submitted the copy of month wise purchase register of diamonds for the period 01.04.2011 to 31.03.2012, copy of purchase register for the month of December, 2011 and February, 2012 computation of total income, Annual Report for FY 2011-12, copy of Audited Financial Statements i.e. Balance Sheet, Profit & Loss Account along with complete schedules, copy of Tax Audit Report in Form-3CA/3CD, copy of Form-26AS, details of TDS deducted party wise, copy of Bank Statement reflecting purchase transactions and proof of RTGS
3 ITA No. 1499/Hyd/17 Musaddilals Jewellers (India) Pvt. Ltd. payments. In this regard, assessee placed reliance on the following ITAT orders: (i) ITO Vs. Sri Deepak Popattal Gala, in ITA No. 5920/Mum/2013, dated 27.03.2015.
(ii) ACIT-21(1) Vs. Ramesh Kumar & Co, in ITA No. 2959/Mum/2014, dated 28.11.2014.
After considering the submissions of the assessee, the CIT(A) confirmed the addition made by the AO.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: 1) The order of the Commissioner of Income Tax (Appeals)-4, Hyderabad in confirming the addition of Rs.16,90,160 is wholly unsustainable both on law and in facts.
2) The Learned CIT (A) having found as a matter of fact that the purchase of diamonds were duly accounted for in the· purchase Register and were all paid by RTGS mode of payment erred in confirming the addition which is totally contrary to the facts and evidence on record.
3) The Learned CIT(A) failed to note that the purchase of diamonds from M/s Euro Diam and M/s Megha Gems at Rs.15,72,350 and Rs. 1,17,810 respectively were genuine purchases and therefore erred in coming to a contrary conclusion respectively while confirming the addition.
4) Any other ground or grounds that may be urged at the time of hearing.”
Ld. AR submitted that AO disallowed the purchases based on the information from Investigation Wing without properly verifying the purchases or making further investigation. He submitted that all the purchases are genuine and properly recorded in the financial statement. He brought to our notice the financial statements to demonstrate that the results declared by the assessee are consistent over the years and all the quantity details are matched with the financial results. He further submitted that assessee was not provided
4 ITA No. 1499/Hyd/17 Musaddilals Jewellers (India) Pvt. Ltd. opportunity to cross examine the entry provider. Moreover, the MD has categorically denied knowing the entry provider personally and the statements were recorded after two years. In this process, he relied on the following case law: 1. ACIT Vs. M/s Larsco Entertainment Pvt. Ltd., 249/Hyd/2014 2. ITO Vs. Premanand, 25 SOT 11 ( ITAT, Jodh.) 3. Jagadamba Trading Co. Vs. ITO, 16 SOT 66 (Jodh.) 4. Multitex Filtration Engineers (P) Ltd. Vs. DCIT, 13 SOT 208 (Del.) 5. CIT Vs. Nikunj Eximp Enterprises (P) Ltd., 372 ITR 619 6. Mohanlal R. Daga Vs. ITO, 147 Taxman 28 7. CIT Vs. Bholanath Poly Fab Pvt. Ltd., 355 ITR 290 (Guj) 8. Prakash Chand Natha Vs. CIT, 301 ITR 134 (MP) 9. CIT Vs. MK Brothers, 163 ITR 249 (Guj.) 10. CIT Vs. Sunrise Tooling System P. Ltd., 361 ITR 206 (Guj.) 11. CIT Vs. Pradeep Kumar Gupta and Vijay Gupta, 303 ITR 95 (Del.) 12. Ramlila Pravin Shah, ITA No. 5246/Mum/2013. Dt. 05/03/2015.
Ld. DR relied on the order of CIT(A) and submitted that AO has elaborately discussed the issue in his report.
Considered the rival submissions and perused the material on record. We notice that AO has disallowed the purchases merely based on the information from Investigation Wing without making further enquiry. Even assessee was not given opportunity to cross examine the entry provider. There is no material brought by the AO on record to show that the assessee has made bogus purchases. In this connection, we refer to the following judgements of the Hon’ble High Courts:
7.1 In the case of CIT Vs. Nikunj Eximp Enterprises (P) Ltd., [2013] 216 Taxman 171 (Bom), the Hon’ble Bombay High Court has held as under: “7. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30-04- 2010, we find that the Tribunal has deleted the additions on
5 ITA No. 1499/Hyd/17 Musaddilals Jewellers (India) Pvt. Ltd. account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of RS.1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs.1.33 crores was not bogus. No fault can be found with the order dated 30-04-2010 of the Tribunal.”
7.2 In the case of CIT Vs. Bholanath Poly Fab Pvt. Ltd., [2013] 355 ITR 290 (Guj.), the Hon’ble Gujarat High Court has held that whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished fabrics. Therefore, as a natural corollary, not the entire amount covered under such purchases, but the profit element embedded therein would be subject to tax.
7.3 In the case of Prakash Chand Nahta Vs. CIT, [2008] 301 ITR 134 (MP), the Hon’ble MP High Court held that as the AO had not summoned R in spite of the request under section 131 of the Act, the evidence of R could not have been used against the assessee and in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment order was vitiated.
6 ITA No. 1499/Hyd/17 Musaddilals Jewellers (India) Pvt. Ltd. 7.4 We are of the view that the AO failed to establish that the assessee has made bogus purchases by bringing documentary evidence on record and, also, assessee was not given opportunity to cross-examine the entry provider. Therefore, following the ratio laid down in the aforesaid cases, we set aside the order of the CIT(A) and direct the AO to delete the addition of Rs. 16,90,160/- made on account of purchases. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Pronounced in the open Court on 11th July, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 11th July, 2018 kv Copy to:- 1) M/s Musaddilals Jewellers (India) Pvt. Ltd., 5-9-57/5, 6 & 7, Basheerbag X Roads, Hyderabad – 500 063 2) ACIT, Circle – 16(2), Hyderabad. 3) CIT(A) – 4, Hyderabad. 4) Pr. CIT - 4, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File