SMT. NEENA J SHAH L/H OF LATE SHRI. JATIN B SHAH,MUMBAI vs. ITO 19 (2)(1), MUMBAI

This is an appeal by the assessee against the order dated 16.05.2019 of learned Commissioner of Income Tax (Appeals)–04, Mumbai for the assessment year 2007-08.

The dispute in the present appeal is confined to the addition of Rs.2,88,140 on account of alleged non-genuine purchases. 3. Briefly the facts are, the assessee is an individual and is engaged in the business of trading in Diamonds through his proprietary concern M/s. Jatinkumar & Co. For the assessment year under dispute, the assessee filed his return of income on 08.01.2008 declaring total income of Rs.1,88,357/-. Initially, the return of income was processed u/s 143(1) of the Act. Subsequently, on receiving information that the assessee is a beneficiary of accommodation bills provided by some entities for purchase of diamonds worth of Rs.36,01,752/-, the Assessing Officer reopened the assessment u/s 147 of the Act. In course of assessment proceedings, the Assessing Officer found that Assessment Year: 2007-08 as per the information available on record, in course of search & seizure operation conducted in case of Rajendra Jain Group/Sanjay Choudhary Group/Dharmichand Jain Group on 03.10.2013 it was found that all the entities belonging to the said groups are paper entities with no real business activity and are only providing accommodation entries. Therefore, he called upon the assessee to prove the genuineness of the following purchases. (i) M/s. Avi Exports of Rs.2398915/- (ii) M/s. Sun Diam of Rs.1202837/- Total Rs.3601752/-

In response to the query raised by the Assessing Officer, though, the assessee furnished some documentary evidences to prove the purchases, however, they were not to the satisfaction of the Assessing Offer. Therefore, relying upon the information obtained during the course of search & seizure operation, the Assessing Officer concluded that the purchases from the aforesaid two entities are non-genuine. However, he accepted the fact that the diamonds representing such purchases have entered the stock of the assessee, meaning thereby, the assessee has purchased diamonds from grey market by suppressing the profit. Thereafter, referring to Benign Assessment Procedure (BAP) introduced by Government of India in the Budget 2007, the Assessing Officer proceeded to estimate the profit on the alleged non-genuine purchases at 8% and added an amount of Rs.2,88,140/-. Though, the assessee contested the aforesaid addition before Learned Commissioner (Appeals), however, the addition was sustained.

Learned Authorized Representative of the assessee submitted, the assessee purchases and exports diamonds. He submitted all the evidences including export bills, documents as well as affidavits of the persons from whom diamonds are purchased were filed before the Assessing Officer. He submitted, even the VAT authority has not found any irregularity in the transactions. Therefore, the purchases made by assessee cannot be treated as Assessment Year: 2007-08 non-genuine to make the disallowance. Without prejudice, he submitted, the disallowance at 8% of the alleged non-genuine purchases is on a much higher side as the normal profit rate in trading in diamonds varies between 1% to 3%. Therefore, he submitted, the disallowance, if any, should be made at 3% of alleged non-genuine purchases. 6. The Learned Departmental Representative strongly relied upon the observations of Assessing Officer and learned Commissioner (Appeals). 7. I have considered rival submissions and perused the material on record. Undoubtedly, based on specific information received from the Investigation Wing of the Department, the Assessing Officer having found that the disputed purchases made by the assessee or non-genuine, has reopened assessment under section 147 of the Act. In course of assessment proceedings, the Assessing Officer had called upon the assessee to furnish cogent evidence to prove the source of purchases. However, the evidences furnished by assessee could not conclusively prove the source of purchases. Identical is the factual position before learned Commissioner (Appeals). Though, before me learned counsel for the assesse has submitted that affidavits of the sellers have been filed before the Assessing Officer, however, there is no reference to them in the assessment order. Further, it is a fact on record that the assessee has failed to produce the concerned selling dealers either before the Assessing Officer or even before learned Commissioner (Appeals). That being the case, source of purchase of diamonds remains doubtful. In such scenario, the logical conclusion would be, the assessee must have purchased the diamonds from unverified source to suppress the profit and has availed accommodation bills to regularise such purchase. That being the case, to take care of possible leakage in revenue, profit element embedded in such purchases has to be considered for addition. Having held so, the issue which now requires consideration is, whether estimation of profit at 8% is reasonable? Undisputedly, referring to BAP the Assessing Officer has estimated profit at 8%. However, after introduction of BAP, there has been further development and a task group Assessment Year: 2007-08 formed by the Ministry of Commerce Industries, Government of India has submitted report stating that in diamond trading the expected profit which can be earned would not be more than 3%. It is also relevant to observe, keeping in view the aforesaid report of the task group, in many cases the appellate authorities have restricted the disallowance to 3% of the alleged non-genuine purchases. In view of the aforesaid, I deem it appropriate to restrict the disallowance to 3% of alleged non-genuine purchases. Grounds are partly allowed. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 22nd February, 2021. (SAKTIJIT DEY) JUDICIAL MEMBER