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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SMT.ANNAPURNA GUPTAShri Bhupendra S. Chokshi
(Applicant) (Responent) : Shri Mukund Bakshi, AR Assessee by Revenue by : Shri Mukesh Thawani सुनवाई क� तार�ख/Date of Hearing : 08/09/2022 घोषणा क� तार�ख /Date of Pronouncement: 13/09/2022 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals)-2, Baroda (in short referred to as ld.CIT(A)) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 30.5.2017 pertaining to Asst.Year 2007-03.
This is a recalled matter. In the first round of litigation, the appeal of the assessee was dismissed ex parte by the Tribunal by order dated 3.4.2019 for want of prosecution. However, liberty was given to the assessee to recall the same in case the assessee was able to demonstrate reasonable cause for non-prosecution. Accordingly, assessee filed Misc. Application being MA No.15/Ahd/2022 on 5.5.2022, seeking recall of the impugned order dated 3.4.2019. After considering the pleadings and submissions of the assessee, the Tribunal vide order dated 20.7.2022 recalled the order dated 3.4.2019, and listed the appeal of the assessee for de novo hearing. Accordingly, the matter case has come up before me for adjudication on merit.
The effective grounds of appeal raised by the assessee are as under:
“1. The Ld. Commissioner of Income Tax (Appeals)-2, Vadodara has erred in law and in facts in confirming the action of the Ld. A.O. in reopening the assessment by issue of notice u/s. 148, which is claimed to have been based on receipt of information from the third party regarding bogus purchase transactions made by the appellant. The Ld. CIT(A) ought to have quashed and set aside the impugned assessment being bad in law.
2. The Ld. CIT(A)-2, Vadodara has erred in law and in facts in - (a) confirming the addition of Rs. 6,80,400/- made on account of bogus purchase of cut and polished diamonds; (b) rejecting the appellant's alternate plea of taxing only the profit embedded in such purchases and not the entire amount of purchase of Rs. 6,80,4007- as done by the Ld. A.O. The impugned addition being in complete disregard of the applicable facts and law is, therefore, prayed to be deleted.:
The ld.counsel for the assessee stated before me that he was not pressing ground no.1. Ground no.1 is therefore dismissed as not pressed.
Ground No.2 relates to addition of Rs.6,80,400/- made on account of bogus purchase of cut and polished diamonds in his business, which was confirmed by the ld.CIT(A).
The ld.counsel for the assessee pointed out that before the ld.CIT(A), besides challenging entire addition, an alternative prayer had been made that only the profit embedded in such bogus purchases be added, which was dismissed by the ld.CIT(A) holding at para 4.2 as under:
“4.2. Ground No. 2 & 3 pertain to the addition of Rs.6,80,400/-made on account of bogus purchases of Diamond and alternative plea of assessing only profit embedded in such purchases. As already discussed the prop, of M/s. Mayank Impex had given a clear cut admission during the course of search that he had issued bills for accommodation entry only. The appellant has not furnished confirmation from the said party that M/s. Mayank Impex had actually sold Diamond to the appellant. Although the appellant has furnished copy of Invoices for purchase of Diamond but in the absence of confirmation, same cannot be accepted as concrete evidence. On perusal of Invoice dated 02.01.2007, it is noticed that the appellant has shown purchase of cut and polished diamonds at 32.40 carrot for Rs.6,80,400/-. The Ld. Authorized Representative was specifically asked to prove that the said purchases are duly reflected in sales. However, no evidence in this regard has been furnished. On perusal of the Balance Sheet and Profit and Loss Account, I find that Inventory as per Annexure-E, Cost of Goods sold as per Annexure-I and Sales as per Annexure-G show only the details of Diamond Ornaments. No where cut and polished diamond have been shown either in the closing stock or in the sales. Therefore, genuineness of the purchases remained unverifiable. Hon'ble jurisdictional High Court vide order dated 20.06.2016 in Tax Appeal No. 240 of 2003 along with other Tax Appeal in the case of N.K. Industries Ltd. Vs. DCIT has held that when the purchases were found bogus, entire purchases have to be disallowed. This decision of Hon'ble Gujarat High Court has also been upheld by Hon'ble Supreme Court by dismissing SLP on 16.01.2017 in the case of N.K. Proteins Ltd. Vs. DCIT, contained in SLP (C) CC No. 963/2017. In view of the above discussion and legal position, thus I hold that the Assessing Officer has rightly disallowed entire bogus purchases. Hence the addition made by the Assessing Officer is sustained and Ground No. 2 & 3 are dismissed.
The ld.counsel for the assessee pointed out from the above that the ld.CIT(A) dismissed the assesses alternative contention and confirmed the entire addition of bogus purchases noting the fact that the impugned purchases had been admitted to be bogus by the parties from whom the purchases had been made and admitted to be only bills issued for accommodation entry purpose. He pointed out that the ld.CIT(A) further noted that the assessee was unable to prove the genuineness of the purchases, having filed only invoices on account of purchase of diamond and in the absence of confirmation of the said party, the ld.CIT(A) refused to accept this evidence. The ld.CIT(A), he pointed out, further noted that the 4 assessee was unable to demonstrate that the purchases relating to these amounts was reflected in the sales of the assessee. He further noted that even quantitative analysis provided in the balance sheet and profit & loss account of the assessee showed no details of cut and polished diamonds which were purportedly purchased through these bills. He therefore held that the genuineness of the purchases had remained unproved and applying the decision of Hon’ble jurisdictional High Court, which was upheld by the Hon’ble Supreme Court by dismissing SLP in the case of N.K. Industries Ltd. Vs. DCIT, he disallowed entire bogus purchases.
The ld.counsel for the assessee pleaded that in the facts of the present case, the decision of the Hon’ble Supreme Court / Hon’ble jurisdictional High Court was not applicable. He pointed out that sufficient evidences had been filed to the Revenue authorities proving the purchases of cut and un-cut diamonds. In this regard he drew attention to PB Page No.18, being audited financial statements of the assessee for the year, wherein quantitative details of diamonds in cut and polished form, was provided, reflecting its opening stock, purchases, loss on account robbery, closing stock and quantity sold. He thereafter drew attention to the identical quantitative details which formed part of the tax audit report of the assessee , duly certified by the Tax Auditor as per section 44AB of the Act placed at PB page No.33. He also drew our attention to the specific bill of Mayank Impex purchasing 32.40 Carat of cut and polished diamonds amounting to Rs.6,80,400/- which was found to be bogus. In this regard he drew attention to evidence for using these diamonds for making ornaments, which were also filed, being a bill from Goverdhandas Narsinhiji, Baroda of Rs.2,66,600/- drawn on the assessee for making new ornaments with32.4Carat diamond studded. He also drew our attention to outward note of the 5 assessee reflecting 32.4C uncut polished diamonds being sent to Goverdhandas Narsinhiji placed at PB Page No.44-45. He therefore stated that the assessee had in fact evidenced purchase of 32.4 Carats of uncut polished diamonds, to which this alleged bogus purchases pertained, and also the fact of their utilization for manufacturing ornaments. He thereafter pointed out that in identical facts and circumstances, in the case of alleged bogus purchases of diamonds, the ITAT had consistently held that it is only the profit element imbedded in the said bogus purchases which ought to be added to the incomes of assesses. Ld.Counsel for the assessee pointed out that the decision of Hon’ble Supreme Court in the case N.K. Proteins (supra) relied upon by the Revenue, was also dealt and distinguished therein. He drew my attention to the following decisions in this regard:
o M/s. Siddhi Diamond Vs. ITO, in dated 12.07.2022 o Sunraj Diamonds Exports Ltd. in ITA No.47 & 46/Mum/2019, for A.Y. 2013-147 A.Y.2014-15 dated 12.03.2021 o ACIT, 22(3),Mumbai Vs. M/s. Vipul Diamond, ITA No.2793/Mum/2018, for A.Y. 2012-13 dated 30.09.2019
The ld.counsel for the assessee also drew attention to the fact that in A.Y 2009-10 in the assesee’s own case, the ld.CIT(A) had in identical set of facts, restricted the additions made on account of bogus purchases to the extent of 15%.
The ld.DR on the other hand, relied on the order of the ld.CIT(A) and further emphasised that in view of the decision of Hon’ble Supreme Court in the case of N.K. Proteins (supra), all purchases found to bogus had necessarily to be disallowed completely, and there was no scope for restricting the disallowance
6 to the extent of any profit element embedded in the same. He further pointed out that extensive inquiry carried out by the Department in the course of search conducted at various parties, had categorically and specifically revealed that the specific transaction with the assessee related to bogus purchase. The parties who had given accommodation had admitted to the said facts, and had also explained modus operandi in this regard, and the assessee was unable to establish otherwise. Therefore, in the light of the same, purchases were correctly categorised as bogus, and disallowance of the entire amount of purchases had been rightly confirmed by the ld.CIT(A).
I have heard both the parties. The purchases amounting to Rs.6,80,400/- have been held to be bogus based on investigation and inquiry by way of search action conducted on various persons including the proprietor of Mayank Impex, who admitted to providing bogus bills of diamond purchase and explained their modus operandi also. The impugned purchases having been made from the said party by the assessee and was accordingly held to be bogus. The assessee at the same time has filed all possible evidences to prove genuineness of the purchase, giving quantitative details of stock, purchases and consumption and sale of the said type of diamonds, bills, bank statements showing payment made for purchases and also evidence showing utilization of the said purchase in making jewellery. I have noted from the audited financial statements that the assessee has returned higher net profits in the impugned year, Rs.18.83 lacs net profit against turnover of Rs. 246.65 lacs, being 7.6% of turnover ,as against that in the preceding year of Rs.4.6 lacs net profit against turnover of Rs.204.82, making it 2.24 % of turnover. Moreover in the 7 succeeding year the Ld.CIT(A) restricted identical purchase of bogus diamonds to the extent of 25% of the purchases.
12. Considering the entire facts and circumstances as noted above, I see no reason to disallow the entire purchases of Rs.6,80,400/- when the facts as above suggest the possibility of the assessee having not probably purchased diamonds of the said worth from Mayank Impex, but from some other party. The consistent decisions of the coordinate benches of the ITAT in similar facts and circumstances, relied upon by the Ld.Counsel for the assessee, holding disallowance of profit element only embedded in such purchases as reasonable, as also the decision of the Ld.CIT(A) in the case of the assessee itself in the succeeding year restricting disallowance of similar bogus purchases to 25%, warrant no different view being taken in the present case before me. The said decisions we have noted have dealt with the Hon’ble Apex Court decision in the case of N K Proteins (supra) heavily relied upon by the Revenue before me.
I accordingly direct restricting addition in the present case to the extent of 25% (twenty five percent) of the purchases found bogus, as done in the succeeding year in the case of the assessee. The ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 13th September, 2022 at Ahmedabad.