R K COLOR DIAMOND PVT LTD.,MUMBAI vs. ITO 5(3)(1), MUMBAI

The assessee in appeal has assailed addition of Rs.1,90,247/- confirmed by the CIT(A) in respect of purchases made from M/s. Prime Star by estimating G.P rate at 8% on such purchases.

The brief facts of the case as emanating from records are: The assessee is a trader in diamonds. During the course of scrutiny proceedings the Assessing Officer observed that the assessee has taken accommodation entries

(A.Y 2014-15) from M/s. Prime Star a firm belong to Bhanwarlal Jain & Group. The Assessing Officer estimated profit margin of 8% on bogus purchases and made addition of Rs.1,90,247/-. Against the assessment order dated 28/07/2016 the assessee filed appeal before the CIT(A). The CIT(A) rejected the contentions of assessee and confirmed the addition made by Assessing Officer. Hence, the present appeal by assessee.

Ms. Smita Verma representing the Department submitted that the assessee is one of the beneficiaries of accommodation entries provided by Bhanwarlal Jain and his associated concerns floated for the sole purpose of providing accommodation entries. During search action under section 132 of Income Tax Act, 1961 (in short 'the Act') in the case of Bhanwarlal Jain Group, Bhanwarlal Jain admitted that through various concerns floated they are providing accommodation entries against commission and there is no actual sale. The Assessing Officer made estimated addition of 8% of the alleged bogus purchases. The estimate made by Assessing Officer is fair and reasonable, therefore, the same has been upheld by the CIT(A). The ld. Departmental Representative vehemently supported the impugned order and prayed for dismissing the appeal of assessee.

Submissions made by ld. Departmental Representative heard, orders of authorities below examined. The assessee has allegedly obtained bogus purchase bills from M/s. Prime Star a firm belonging to Bhanwarlal Jain Group. Undisputedly, the assessee failed to discharge its onus in conclusively proving genuineness of alleged bogus purchases. However, at the same time the Assessing Officer has accepted the sales turnover declared by the assessee. The Assessing Officer estimated profit margin on such purchases at 8% and the CIT(A) has upheld the same. Taking into consideration the nature of (A.Y 2014-15) assessee’s business, I am of the view that profit margin estimated by the authorities below are on higher side. I deem it appropriate to restore this issue back to the file of Assessing Officer to decided the same afresh in line with the decision of Hon'ble Bombay High Court in the case of PCIT vs. Mohommad Haji Adam & Co. in Income Tax Appeal No.1004 of 2016 decided on 11/02/2019. Needless to say that the Assessing Officer shall grant reasonable opportunity of hearing to the assessee before re-adjudicating the issue in accordance with law.

In the result, appeal by the assessee is partly allowed for statistical purpose.