DCIT - 13(2)(1), MUMBAI vs. SATYANIS THE JEWELLERY STORE PVT. LTD., MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-21, Mumbai, dated 28.02.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 27.12.2016. The revenue has assailed the impugned order on the following grounds of appeal before us: “1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the addition to the extent of 6% only of the bogus purchases instead of upholding the same to the extent of 12.5% of such purchases without appreciating the fact that the assessee has failed to prove the genuineness of transaction of the purchases.

Information was received by the A.O from the investigation wing of the Income-tax department that search proceedings conducted on an infamous entry provider viz. Shri Bhanwarlal Jain, therein revealed that the assessee as a beneficiary had obtained bogus purchase bills without any actual supply of material. In the course of the assessment proceedings, it was observed by the A.O that the assessee during the year under consideration had claimed to have made purchases from the following three tainted parties: Name of the entities Amount as per Amount as per assessee supplies Prime Star 18120828 18320156 Mayur Exports 13103292 13247429 Mohit Enterprises 44923782 45417943 Total 7,61,47,902 7,69,85,528 On being called upon to substantiate the genuineness of the aforesaid purchase transactions, the assessee furnished certain supporting documentary evidence viz. (i) copy of the ledger accounts; (ii) statement of disposal of diamonds; (iii) copies of invoices; (iv) copies of tax invoices of corresponding sales; (v) summary of stock of diamonds; (vi) confirmation of accounts of the parties; (vii) copies of the relevant extract of bank statement; (viii) copies of balance sheet; (ix) return of income and PAN; (x) statements of payments made to the parties in the current and the subsequent year; and (xi) affidavit of the parties confirming the sales made by them. In order to verify the genuineness of the aforesaid purchase transactions, the A.O issued letter under Sec. 133(6) to the aforementioned parties. In reply, the aforesaid parties duly admitted that they had sold gold material of a worth Rs.7,69,85,528/- to the assessee during the year under consideration. However, the assessee failed to produce the delivery challans in order to substantiate that the goods were actually received from the aforementioned parties. Also, the assessee despite specific directions by the A.O failed to produce the aforesaid parties for necessary examination before him. In the backdrop of the aforesaid facts the A.O was not persuaded to accept the claim of the assessee that it had made genuine purchases from the aforementioned parties. After deliberating at length on the modus operandi adopted by the hawala entry operators, the A.O held a conviction that the assessee had only obtained accommodation bills from the aforementioned parties and had not made any genuine purchases from them. Accordingly, the A.O relying on the judgments of the Hon’ble High Court of Gujarat in the case of CIT Vs. Bholanath Polyfab (P) Ltd. (2013) 355 ITR 290 (Guj) and CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj), therein made an addition of 12.5% of the aggregate value of the impugned purchases. As such, the A.O being of the view that the assessee had not made any genuine purchases from the aforementioned three parties, therein made an addition of Rs.96,23,191/- (12.5% of Rs.7,69,85,528/-) in the hands of the assessee company.

Aggrieved, the assessee assailed the assessment framed by the A.O before the CIT(A). It was observed by the CIT(A) that the Tribunal in the assesses own case for the immediately preceding year viz. A.Y. 2013-14 wherein identical facts were involved had restricted the addition to 6% of the aggregate value of the impugned bogus purchases. As such, the CIT(A) respectfully following the view taken by the Tribunal restricted the addition in the case of the assessee for the year under consideration viz. A.Y. 2014-15 to 6% of the aggregate value of the impugned purchases of Rs.7,61,47,902/-. Accordingly, on the basis of his aforesaid deliberations the CIT(A) partly allowed the appeal of the assessee.

The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. D.R. that the CIT(A) was in error in dislodging the addition of 12.5% of the bogus purchases as was made by the A.O. However, the ld. D.R, could not controvert the fact that involving identical facts the Tribunal in the assesses own case for the immediately preceding year viz. A.Y. 2013-14 had restricted the addition to 6% of the aggregate value of the unproved purchases.

Per contra, the ld. Authorised Representative (for short „A.R‟) for the assessee relied on the order of the CIT(A). It was submitted by the ld. A.R that as the CIT(A) had followed the view taken by the Tribunal in the assesses own case for A.Y. 2013-14 wherein identical facts were involved, therefore, no infirmity did emerge from his order.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, we find that the assessee in the course of the assessment proceedings had failed to prove to the hilt the authenticity of the purchases which were claimed to have been made from the aforementioned three parties. As such, we are in agreement with the view taken by the lower authorities that it could safely be concluded that the assessee had purchased the goods not from the aforementioned parties but at a discounted value from the unidentified dealers operating in the open/grey market. As a matter of fact, the controversy in the present appeal hinges around the aspect as regards the quantification of the profit which the assessee would have made by procuring the goods at a discounted value from the undisclosed parties operating in the unorganised sector. We find that involving identical facts an addition to the extent of 12.5% of the bogus purchase was made by the A.O in the assesse‟s own case for the immediately preceding year viz. A.Y. 2013-14. On appeal, the Tribunal while disposing off the appeal of the revenue viz. ACIT, Circle 13(2)(1), Mumbai Vs. M/s Satyanis The Jewellery Pvt. ltd. [ITA No.4950/Mum/2016, dated 03.11.2017] for A.Y.2013-14 had 4 The DCIT-13(2)(1) Vs. M/s Satyanis The Jewellery Store Pvt. Ltd.

Resultantly, the appeal filed by the revenue is dismissed.