SUNRAJ DIAMOND EXPORTS LTD,MUMBAI vs. ACIT RANGE 5(3)(2), MUMBAI

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ITA 47/MUM/2019Status: DisposedITAT Mumbai12 March 2021AY 2013-1411 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the Revenue's appeal due to low tax effect. For the assessee's appeal, the Tribunal upheld the CIT(A)'s order, confirming the addition of 2% of bogus purchases, following its own precedent in the assessee's own case.

What were the facts?

The assessee, a diamond trader, was found to have obtained bogus purchase bills from certain entities. The Assessing Officer (AO) made an addition of 12.5% of these bogus purchases. The CIT(A) reduced this addition to 2% of the bogus purchases.

What were the issues?

The primary issue was the addition to income on account of bogus purchases. The secondary issue for the Revenue's appeal was the tax effect for filing an appeal.

Which sections of the Income-tax Act were involved?

Section 132,Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI

For Appellant: Shri Dharmesh Shah, AR, Shri T.S Khalsa, DR
Pronounced: 12.03.2021

Heard together (4 matters)

ITA No. 47/Mum/2019
ITA Nos. 46/Mum/2019
ITA No. 7186/Mum/2018
ITA No. 7254/Mum/2018

Read from the judgment's own cause title. This page is filed under one of them.

& 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 2 आदेश / O R D E R शमीम याहया, लेखा सद�य के सम� / PER SHAMIM YAHYA, AM:

These are cross appeals from the Revenue and assesee arising out of the common order of the learned Commissioner of Income Tax (Appeals)-10 [in short CIT(A)] dated 18.09.2018 for Assessment Years 2013-14 and 2014-15.

2.

The Revenue has challenged that the reduction on account of bogus purchases from 12.5% to 2%, while the assesee is challenged that the sustainance of 2% addition on the bogus purchases.

3.

Brief facts of the case are that the assesee is a manufacture, importer and exporter and trader of cut and polished diamonds. The assessment has been framed pursuant to search action Under Section 132 of the Act conducted by investigated wing of the Department in Rajendra Jain Group. Pursuant to the information that assesee has obtained bogus purchase bills from the entities belonging to the group, the Assessing Officer made 12.5% of the bogus purchases addition by holding as under:-

“4.5 The assessee's submissions have been considered at length, but I am not inclined to accept the same due to the following reasons- (i) It is settled law that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 3 onus in the instant case, lies on the assessee to prove the genuineness of purchase especially in light of the doubts that has been raised by the enquiries conducted by the Investigation Wing, Mumbai. Such a burden has to be discharged by the assessee with very strong and clinching evidence in view of fact that, the Rajendra Jain & group have admitted in the statement recorded on oath during the search action that they are only involved in the business of providing accommodation entries and are not doing any genuine business. ii) Merely filing copies of ledger accounts, bills, bank statements no way establish the fact that the purchases are genuine. The assessee has failed to submit the transportation bills, octrai receipts, the proof of receipt of goods to prove the genuineness of transactions. It is worthwhile to mention that mere payment by account payee cheque is not sufficient proof for claiming any expenditure as held by following courts:

(a) Assam Pesticides and Agro Chemicals Vs. Commissioner of Income- Tax 227 ITR "Mere payment by itself would not entitle an assessee for deduction of the said expenditure unless the same was proved to be paid for commercial consideration. The onus of proof at all relevant items rests upon the assessee. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and situations of the case." & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 4 (b) Chemaux Private Ltd. Vs. Commissioner of Income-Tax 109 ITR 134:

Complete proof is to be given by the person who has claimed the expenditure, that he has incurred the same for the business purpose Consideration of all the above material facts clearly state that the assessee has not made any actual purchases from the two parties M/s. Mayank Impex, M/s.Dharam Impex but has only taken bogus bills /accommodation entries from the concerns without actual delivery of any goods/materials.

4.6 However, the assessee has submitted that for the each of purchases made, have been utilized towards sales. The income arising from such sales have been shown and offered by the assessee in the Profit & Loss A/c. Perusal of the above submission reveals that there is some element of merit in the same for the fact remains that even if the transactions from the parties are accommodative in nature the fact cannot be denied that there is both a purchase and sale angle to them. Considering the facts of the case, it is evident that assessee has purchased goods from open / grey market for benefits like lower duties, better credit facility, greater bargaining power etc. for reasons best known to the assessee and to set right the record, assessee obtained accommodation purchase bills from the two parties, M/s.Mayank Impex and M/s.Dharam Impex. Therefore, the amount of purchases mentioned in the alleged bills cannot be accepted, the reason being that the assessee did make purchases but at a lower price so as to increase its overall & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 5 profits. By recording the bogus purchases at a higher level, the assessee managed to siphon off the profit to the extent of difference between the actual purchases and bogus purchases. Any person indulging in the practice of purchasing the goods from the grey market and obtaining bogus bills of some of the parties would do so for getting some benefits. But what would be the magnitude of the benefit would depend upon the facts of the case.

4.7 In view of the above discussion, it is very clear that the assessee has arranged bills worth Rs. 5,51,11,159/- from the aforesaid two hawala parties as reported hereinabove to suppress its true profits. Having regard to the facts and circumstances of the case as well as Gujarat High Court decision in the case of Simit P. Sheth (2013) [356 ITR 451 (Guj.)], I hereby estimate the G.P. percentage at 12.5%, being the possible profit out of the purchases made through non-genuine parties known as tainted purchases and therefore, I hereby make an addition of Rs.68,88,895/- [12.5% of Rs. 5,51,11,159/-]. Further, on the similar issue in assessee own case in the previous year i.e A.Y. 2008-09, 2011-12 and 2013-14 ,scrutiny assessment was completed and the department has taken the similar stand and considering the facts and circumstances of the case there is no reason to deviate from the same. The assessee has requested to accept the order of the CIT(A) for A.Y.2008-09 and 2011-12 wherein the addition is restricted to 3%. The contention of the assessee is considered but not accepted as the department is in further appeal against the said CIT(A)'s order. & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 6 Penalty proceedings u/s 271(1)(c) are separately initiated in this context for furnishing of inaccurate particulars.”

4.

Upon assessee’s appeal the learned CIT(A) restricted the addition with 2% of the bogus purchases, upon accepting the assessee’s reference of ITAT’s decision in assessee’s own case in earlier year. The concluding portion of learned CIT(A)’s order read as under:-

“6.3.2 It is also observed that recently the Hon'ble Tribunal, Mumbai 'F' Bench vide order dated 13/08/2018 in Appellant's own case in ACIT-5(3)(2) Vs. M/s Sunraj Diamonds Exports Pvt. Ltd, & 6758/Mum/2016 and ITA No. 6730 & 6731/Mum/2016 has modified the order of the CIT(A) to restrict the addition to the extent of 2% of the bogus purchases in place of 3% as upheld by him, with following observations:

We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that assessee is engaged in manufacturing and export of diamonds. During the course of assessment, assessee has filed ledger copy of Mayank Impex and Nazar Impex Pvt. Ltd, along with their confirmation which are alleged to be bogus suppliers. Copy of invoice cum delivery challans, copy of bank statements, highlighting payment made to Mayank lmpex and Nazar Impex Pvt. Ltd were also filed. Details of opening stock purchases and sales and closing stock details along with quantitative tally in carats. Stock register for & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 7 purchase and corresponding sales in the form of export, purchases against "H" forms and corresponding export sales forms were also filed. Since there was export of the goods alleged to be purchased through bogus suppliers, 1 % addition on account of VAT is not warranted. Accordingly, we modify the order of the CIT(A) to restrict the addition to the extent of 2% of the bogus purchases in place of 3% as upheld by him.

9. In the result, appeals of the revenue are dismissed on the account of tax effect and appeals of assessee are allowed in part in both the years under consideration.

Order pronounced in the open court on this 13/08/2018 6.3.3 The facts of the case during the year under consideration are identical. One of the bogus dealers i.e. M/s Mayank lmpex is also the same. On the basis of information received from the DGIT(lnv.), Mumbai subsequent to search and seizure action conducted by the investigation wing, during the course of which Sh. Rajendra Jain and his appointed directors/ partners have given categorical statements, and admitted unequivocally before the investigation wing that they were not involved in any real trading of diamonds except giving bogus bills to those who need them for certain commission, and having observed that those parties are non-existent sellers and they have not made any sales except the bogus invoices

ITA Nos. 46 & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 8 issued in the names of the companies/firms floated by them which are appearing in the books of the appellant company, the AO has brought to tax 12.5% of bogus purchases standing in the names of the so-called sellers, as in the earlier years, as the explanation given by the appellant was not satisfactory to him. As in earlier years, it was the argument of the appellant that the AO has considered the said purchases as bogus solely on the basis of information received from investigation wing without any further enquiries, though there is no corroborative evidence to prove that the purchases made are not genuine, hence, the addition made are not valid. Therefore, the finding given by my predecessor in the appellant's own case for AYs 2008- 09 & 2011-12 in Appeal No. CIT(A)-10/ACIT-5(3)(2)/435 & 434/2015-16 dated 29/08/2016 will apply mutatis mutandis to the assessment years under consideration. The ruling of the Hon'ble Tribunal , Mumbai 'F' Bench vide order dated 13/08/2018 in Appellant's own case in ACIT- 5(3)(2) Vs. M/s Sunraj Diamonds Exports Pvt. Ltd, & 6758/Mum/2016 and ITA No. 6730 & 6731/Mum/2016 modifying the order of the CIT(A) to restrict the addition to the extent of 2% of the bogus purchases in place of 3% as upheld by him, would also be equally applicable to the years under consideration.

6.3.4 Thus taking in to account the whole facts, the profit embedded in accommodation entries of purchase of diamonds is estimated @ 2% of the purchase amount of Rs. 14,14,17,969/-for AY 2013-14 and an addition of Rs. 28,28,359/- to the total income of the appellant is sustained. & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 9 The appellant gets relief of Rs. 1,48,48,887/- (Rs. 1,76,77,246/- minus Rs. 28,28,359/-).

6.3.5 For AY 2014-15, the profit embedded in accommodation entries of purchase of diamonds is estimated @ 2% of the purchase amount of Rs. 5,51,11,159/- and an addition of Rs. 11,02,223/- to the total income of the appellant is sustained. The appellant gets relief of Rs.57,86,672/- (Rs. 68,88,895/- minus Rs. 11,02,223/-).

6.3.6 Accordingly, these grounds of the appeals are partly allowed.”

5.

Against the above order, the Revenue and assessee are in cross appeal. As regards to the Revenue’s appeal, the learned counsel for the assessee submitted that the tax effect in Revenue’s appeal is below the limit fixed by CBDT for filing appeals before ITAT in CBDT Circular No.17/2019 dated 8th Auggust, 2019. Per contra, the learned Departmental Representative could not dispute the proposition that the tax effect in this case is below the limit fixed by CBDT for filing appeals before ITAT. However, he sought liberty for restoration of Revenue’s appeal if tax effect is found to be above the limit so fixed.

6.

Upon careful consideration, we dismiss the Revenue’s appeal in limine on account of the tax effect. The Revenue will have the liberty to seek restoration of the appeal if the tax effect is found above the limit so fixed by the CBDT. & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 10 7. As regards to the assessee’s appeal, the learned Counsel for the assessee has pleaded that the ratio of this decision from Hon’ble Jurisdictional High court in the case of Pr. CIT vs. Mohommad Haji Adam & Co. in Income Tax Appeal No. 1004 of 2016 and others vide order dated 11th February, 2019 should be followed and only the difference between the gross profit on genuine purchases and bogus purchases should be added.

8.

We find that in the decision of Hon’ble Jurisdictional High Court in the case of Mohommad Haji Adm. & Co. (supra), the Hon’ble High Court upheld the decision in ITAT’s order in that case. The issue in that case was that during the survey operation in the several entities from whom the assessee has claimed to made purchases, the department collected the information suggesting that the said purchases were not genuine. In the present case, we find that the assesee is engaged into manufacturing and cutting of polishing of diamonds also. Moreover, exhaustive information has been obtained by DGIT investigation, Mumbai that the assessee has taken huge accommodation entry which is running into ten of crores of rupees from Rajendra Jain Group Company. Hence, the aforesaid decision referred by assessee’s counsel is not applicable here. Moreover, in this case, we find that there is no enquiry by the Assessing Officer relating to veracity of sales arising out of bogus purchases. Moreover, there is no examination of the production and other records of the assessee. But the AO has proceeded to allow relief to the assessee by adding only 12.5% and so the further relief granted by Revenue authorities are itself on hollow ground. But as noted & 47/Mum/2019 & 7186 & 7254/Mum/2018 Page | 11 above, Revenue’s appeal is not maintainable on account of low tax effect. Be that as it may, since, the ITAT in assessee’s own case has upheld the addition of 2% of the bogus purchases and no information has been furnished that the said order has been reversed by the Hon’ble Jurisdictional High Court, following the said precedent, we uphold the order of the CIT(A).

9.

In the result, appeals filed by the Revenue as well as the assessee stands dismissed.

Order pronounced in the open court on 12.03.2021

Sd/- Sd/- (राम लाल नेगी / RAM LAL NEGI) (शमीम याहया / SHAMIM YAHYA) (�या�यक सद�य/ JUDICIAL MEMBER) (लेखा सद�य / ACCOUNTANT MEMBER) मुंबई, �दनांक/ Mumbai, Dated: 12.03.2021 सुद�प सरकार, व. �नजी स�चव/ Sudip Sarkar, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

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