ACIT 12 (3)(2), MUMBAI vs. M/S LIPIN EXPORTS PVT LTD., MUMBAI

Briefly the facts are, the assessee is a resident company and engaged in the business as a trader and commission agent in diamond powder. For the assessment year under dispute, assessee filed its return of income declaring total income of Rs. 39,89,666/-. Assessment in case of the assessee was originally completed under section 143(3) of the Act vide order dated 23.10.2009 determining the total income at Rs. 40,46,370/-. Subsequently, based on information received from DGIT (Inv.), Mumbai that the assessee is a beneficiary of accommodation entries provided by various parties by way of non-genuine purchases, the Assessing Officer (AO) reopened the assessment under section 147 of the Act. In course of assessment proceedings, the AO called upon the assessee to prove the purchases worth Rs. 20,02,000/- made from M/s Vitrag Jewels. In response to the query raised, the assessee furnished ledger copy of M/s Vitrag Jewels appearing in assessee’s books, copy of purchase bills, copy of bank statement showing payment made towards purchases and income tax return copy of M/s Vitrag Jewels. Further, the assessee also furnished the address of Shri Mudit Karnawat, Proprietor of M/s Vitrag Jewels. After verifying the evidences furnished by the assessee, the AO was not convinced. Further, he observed, in response to summons issued under section 131 of the Act, the proprietor of M/s Vitrag Jewels did not appear. Thereafter, the AO referred to the statements recorded from one Shri Rajendra Sohan Jain and Shri Mudit Karnawat, wherein Shri Karnawat admitted of being used as dummy for various concerns created by Shri Surendra Jain and Shri Rajendra Jain. Based on on such statement, the AO disallowed the purchases of Rs. 20,02,000/- allegedly made from M/s Vitrag Jewels. Assessee contested the aforesaid disallowance before learned CO No. 58/MUM/2021 Assessment Year: 2007-08 Commissioner (Appeals). After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) directed the AO to restrict the disallowance to 12.5%, being the profit element embedded in the purchases alleged to be non-genuine.

We have considered rival submissions and perused the materials on record. It is evident, the AO primarily relying upon the statements recorded from the proprietor M/s Vitrag Jewels and third parties has treated the purchases as non-genuine. However, it is a fact on record that in course of proceedings before the Departmental Authorities the assessee has furnished various documentary evidences, such as, bank statement showing payment made towards purchase, ledger account of M/s Vitrag Jewels appearing in assessee’s book, certified copy of PAN Card of proprietor of M/s Vitrag Jewels, copy of income tax return filed by proprietor of Vitrag Jewels, account confirmation of the purchases, bank statement of Vitrag Jewels showing receipt of the amount paid by the assessee etc. It is also a fact that the assessee has co-related the purchases with the sales made by furnishing the sale invoices. The AO has not doubted the sales affected by the assessee. It is relevant to observe, various evidences furnished by the assessee before First Appellate Authority were forwarded to the AO for verification. Be that as it may, the fact that the assessee had purchased the goods, though, may not be from the declared source is beyond doubt. In such circumstances, the entire purchases made by the assessee cannot be disallowed. Only the profit element embedded for such purchases can be considered for disallowance to take care of the revenue leakage which might have occurred due to suppression of actual profit. That being the case, we agree with the decision of learned Commissioner (Appeals) in restricting the disallowance to the profit element embedded in the alleged non genuine purchases. Further, in our view, the disallowance made at 12.5% is more than reasonable considering the disallowance made/sustained by the Tribunal in similar nature of cases. Therefore, we do not find any reason CO No. 58/MUM/2021 Assessment Year: 2007-08 to interfere with the decision of learned Commissioner (Appeals). Thus, the grounds raised