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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI M. BALAGANESH, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 18.10.2018 passed by the Commissioner of Income Tax (Appeals) -53, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2007- 08.
The revenue has raised the following grounds: - "
I. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in reducing the net profit on non-genuine A.Y.2007-08 purchase from 100% as determined by the AO to 6% without the assessee having brought on record any additional evidence or submission before the CIT(A) while determining the net profit.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred on facts and law by not upholding the entire addition of Rs.5,24,21,040/-, in contravention of the decision of Hon’ble Supreme Court in N. K. Proteins since the AO has given a categorical finding of fact that no goods were actually supplied.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in giving relief of the assessee by determining net profit at 6% on only non genuine purchase by relying on instruction no.2 of 2008 dated 22.02.2008 which required/specifies 6% of net profit on total turnover under the Benign Assessment Scheme, while the assessee declared only 0.09% on total turnover.?."
3. The brief facts of the case are that the assessee filed his return of income on 14.10.2007 declaring total income to the tune at Rs.3,07,548/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case of the assessee was reopened after recording the reasons. Accordingly notice u/s 148 of the Act dated 21.03.2014 was issued and served upon the assessee. In response to the notice, the assessee filed the return of income on 11.04.2014. Thereafter, notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of trading in diamonds/manufacturing industry. The case of the assessee was reopened on the basis of an information received from the DGIT(In.) Mumbai in which it was conveyed that the assessee has taken the bogus purchase entries from the two parties in sum of Rs.5,24,21,040/- which are hereby as under: - S. No. Name of the entry issuer Amount (Rs.)
2 A.Y.2007-08 1 Kunal Gems Rs.2,44,06,640 2 Natasha Enterprises Rs.2,80,14,400 Total Rs.5,24,24,040 Thereafter, the AO raised the addition to the extent of total bogus purchase of Rs.5,24,21,040/-. The total income of the assessee was assessed to the tune of Rs.5,27,28,590/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who restricted the addition to the extent of 6% of the bogus purchase in sum of Rs.5,24,21,040/-. The revenue was not satisfied, therefore, the revenue has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Department and has gone through the case filed carefully. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly restricted the addition to the extent of 6% of the total bogus purchase whereas whole addition of bogus purchase is liable to be added to the income of the assessee in the interest of justice, therefore, the finding of the CIT(A) is not justifiable and is liable to be set aside. At the time of argument, the Ld. Representative of the revenue has relied upon the case titled as N.K. Protein Ltd. Vs. DCIT (2017) Supreme Court. On the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - “5.12 In the case of Naitik Gems the issue involved purchases from entities belonging to Rajendra Jain entities and the purchases were from Sparsh Exports Pvt. Ltd. The assessing officer made a disallowance of 6% of such purchases. This was based on the 3 A.Y.2007-08 Instruction no 2 of 2008 related to benign assessment in the cases of assesses in the diamond business. The Ld. CIT(A) reduced the disallowance to 3% of the purchases based on the recommendation of the Task Force group fur diamond industry set up by the Government of India, Ministry of Commerce and Industry which after considering the Benign Assessment Procedure (BAP) scheme recommended a net profit of 2% for trading activity, 3% for manufacturing activity and 2.5% across the board for diamond industry. The appeal filed by the assesse in ITA No. 4760/Mum./2017 was dismissed vide order dated 2.11.2017. In the case of Renisha Impex P. Ltd. in ITA 4464/M/ 16 and ITA 4453/M/16 in the order dated 12.9.2017, as against 100% disallowance made by the assessing officer, the Hon'ble ITAT upheld disallowance of 4% of impugned purchases. This was a case of purchases from Praveen Jain entity. In the case of Suresh L Satyani in ITA 3452/M/16 vide order dated 8.3.2017, the Hon'ble ITAT upheld the order of CIT(A) who had considered the disallowance @ 9% but considered granting credit far net profit offered This was a case where purchases were from Bhanwarlal Jain entities.
5.13. The assessing officer has disallowed the entire impugned purchases. This results in net profit going up to 14.4% against 0.09% disclose in the return. This is in my view unreasonable and unheard of in diamond trade. Further, in subsequent assessment years, on similar facts, disallowance was made @ 8% and entire purchase was not disallowed. In the case of the appellant, therefore the fair and reasonable margin is considered to be @ 6% 4 A.Y.2007-08 of the impugned purchases. Accordingly, the addition to the total income is restricted to 6% of the purchases of Rs.5,24,21,040/- which works out to Rs.31,45,262/-. The appellant gets a relief of Rs.4,92,75,778/- .”
On appraisal of the above mentioned finding, we noticed that the CIT(A) has decided the matter of controversy on the basis of the decision of Hon,ble, Gujrat High court in case titled as CIT Vs. Simit P. Sheth of 2012 dated 16.01.2013 and also decision of Hon’ble Bombay High Court in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. and in the case of CIT Vs. Bholanath Poly Fab (P) Ltd. ITA. No.63 of 2012 dated 23.10.2012. The CIT(A) has also gone through facts of the present case and restricted the bogus purchase to the extent of 6% of the purchases of Rs.5,24,21,040/- which works out to Rs.31,45,262/-. In view of the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd, the 100% addition cannot be sustained. The CIT(A) also considered the gross profit of the year concerned. Anyhow, on seeing the facts and circumstances, it seems quite justifiable to restrict the addition to the extent of 6% of the total bogus purchase. We nowhere found any illegality and infirmity in the order passed by CIT(A) in question. Taking into account all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, all these issues are decided in favour of the assessee against the revenue.
5 A.Y.2007-08