Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
M/s Vipul Diamond CO No. 121/Mum/2019 ORDER
PER N.K. PRADHAN, AM
The appeal by the Revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-34, Mumbai and arise out of the assessment passed by the Assessing Officer (AO) u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal filed by the revenue read as under:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition to 3% of the total bogus purchases of Rs.11,17,20,486/- without appreciating that the assessee during the assessment proceedings could not establish the genuineness of purchases.
2. On the fact and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition to 3% of the total bogus purchases of Rs.11,17,20,486/- without considering the Supreme Court Judgment in the case of N.K. Proteins Ltd. SLP CC No. 769 of 2017 vs. DCIT dated 16.01.2017, wherein the addition of entire bogus purchases was upheld. 3. The Cross objections filed by the assessee are as under :
1. The Ld. CIT(A) erred in concluding that the impugned purchases were not genuine inspite of the fact, all supporting documents were filed and the supplier had responded to notice u/s 133(6) and no opportunity to cross examine the suppliers was given to the assessee.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the addition to the extent of 3% of the impugned purchases of Rs.11,17,20,486/- 4. Briefly stated, the facts of the case are that the assessee is a trader in diamonds. It filed its return of income for the assessment year (AY)
M/s Vipul Diamond CO No. 121/Mum/2019 2012-13 on 25.09.2012 declaring total income of Rs.86,79,589/-. The return of income was processed u/s 143(1) of the Act. During the course of assessment proceedings, the Assessing Officer (AO) received information from the Investigation Wing that the assessee has taken accommodation entries of bogus purchases from the benami concerns of Bhanwarlal Jain group, discovered during the course of search. The information specifically listed the name of the following seven parties from whom the assessee has claimed to have made purchases worth Rs.11,17,20,486/- detailed below: S. No. Entity PAN Amount (Rs.) 1. Daksh Dimaonds (Mumbai) AURPS3696K 1,89,68,788 2. Daksh Diamonds (Surat) AURPS3696K 2,02,30,216 3 Jewel Diam (Mumbai) ABUPV3494J 1,43,71,437 4 Jewel Diam(Surat) ABUPV3494J 1,76,36,015 5 Marc Gems CVEPS0399P 24,19,886 6 Mimixa Diam AFPRT2903F 1,73,37,030 7 Naman Exports AGWPC1001D 2,07,57,114 Total 11,17,20,486 The AO noted that during the course of search and seizure action in the case of Bhanwarlal Jain group, statements of various key personnels were recorded under oath to establish the modus operandi of the group. As per the information received from the Investigation Wing, the traders usually purchase rough diamonds from undisclosed parties in cash and require purchase bills to balance their account and to circumvent M/s Vipul Diamond CO No. 121/Mum/2019 provisions of section 40A(3) of the Act or traders who tend to inflate purchases and to defraud revenue by showing low profit resort to these benami concerns to get bogus purchase bills. During the course of assessment proceedings, the AO issued notice u/s 133(6) to the above seven parties. In response to it, the AO received information from four parties and found that this was in line with report received from the Investigation Wing on the modus operandi of such concerns which were in the business of giving accommodation entries. For the remaining three parties, the AO did not receive the replies to the notices issued u/s 133(6) till the date of passing the order. The same was communicated by the AO to the assessee who vide letter dated 27.03.2015 submitted that the parties have sent their replies through speed posts. However, as the assessee failed to produce the parties and also failed to produce the documents called for vide notice u/s 133(6), the AO held that the assessee failed to establish the genuineness of purchases. In response to query raised by the AO to explain the genuineness of the purchases made from the above parties, the assessee filed a reply enclosing the ledger accounts, sample bills, bank statements reflecting the above transactions and corresponding sales. In order to ascertain the genuineness of purchases, the AO issued summons u/s 131 to the above seven parties for compliance on 24.03.2015. The assessee vide letter dated 24.03.2015 submitted that the summons have been given to the respective parties. As the parties did not appear before the AO, he again vide order sheet noting dated 27.03.2015 M/s Vipul Diamond CO No. 121/Mum/2019 asked the assessee to produce the said parties. However, the assessee failed to produce the said parties.
Considering the fact that the assessee was a beneficiary of the accommodation bills issued by the above parties and there was no response fully from the said parties to the notices issued u/s 133(6) and summons u/s 131 of the Act, the AO made an addition of Rs.11,17,20,486/- to the income declared by the assessee.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). It is found that vide order dated 05.02.2018, the Ld. CIT(A) held :
“4.11 In this case, information have been received from the Investigation Wing that Bhawarlal Jain Group have main business entities through which various interested parties have taken accommodation entries and one such interested party is the appellant. The A.O. has disallowed the entire purchases without questioning the sale side. If the entire purchases i.e. Rs.11,17,20,486/- are disallowed out of a turnover of Rs.38,28,16,417/-, it would lead to gross profit of Rs.13,38,12,665/- which works out to an impracticable and astronomical gross profit ratio i.e. 34.95% and the net profit will be 30.67%. This is absurd for a diamond trader particularly in the background of the fact that the gross profit and net profit shown in the preceding year are very meagre which is as per the trend of the diamond industry. The gross profit and net profit margin of the earlier two assessment years along with the assessment year under appeal are given below in tabular form:
M/s Vipul Diamond CO No. 121/Mum/2019 Asst. Year Turnover Rs Gross Profit Rs. (in Net Profit GP% NP% (in Crs) Crs) Rs. (in Crs)
2010/11 11,58,95,747 47,27,327 2,90,829 4.08 0.25 2011/12 22,26,24,043 78,03,285 9,46,818 3.51 0.43 2012/13 38,28,16,417 2,20,92,179 56,81,418 5.77 1.48 4.12 Thus, it is clear that disallowance of entire purchases is not at all justified. Under identical situation, the decision of Hon'ble Tribunal including the jurisdictional Hon'ble Tribunal have to be considered. Though, there are catena of cases including some of them delivered by the jurisdictional ITAT which has decided on this issue, but all of them are not uniform as the cases have been decided as per facts and circumstances of that particular case before them. In the case of diamond business, the VAT charges are 1% and the custom duty on import is above 2%. Keeping in view the above tax rates, the intention of the appellant to save tax from the transaction should be viewed only to the extent of benefit derived by the appellant from indulging in unethical practice of taking accommodation entries. Also, keeping in view the Board's Instruction No.2/2008 dated 22.02.2008 wherein it has laid down guidelines in the form of benign assessment procedure for assessee engaged in diamond manufacturing and/or trading and report of Task Force for diamond sector submitted to the Department of Commerce wherein it was submitted that net profit in diamond manufacturing is in the range of 1.5% to 4.5 % and in diamond trading, it is in the range of 1% to 3%, it will be fair to estimate the gross profit out of purchases from the dealers which have provided only accommodation entries. Though the Hon'ble M/s Vipul Diamond CO No. 121/Mum/2019 Tribunals including jurisdictional Tribunals have held 2 to 3% as the profit reasonable in diamond trading particularly on purchases for which the accommodation entries have been taken from Bhanwarlal Jain & Others, however, I find it reasonable if 3% of the amount of so called bogus purchases are brought, to tax. I accordingly direct the A.O. to disallow 3% of the purchases under reference i.e. Rs.11,17,20,486/-over and above the income returned, in place of total purchases. This addition is clear of profit disclosed by the appellant during the year.”
Before us, the Ld. Departmental Representative (DR) submits that in the instant case, as per the information received from the Investigation Wing, the assessee has taken accommodation entries of bogus purchases from the benami concerns of Bhanwarlal Jain group. The AO did not receive the information called for in respect of three parties in response to notice u/s 133(6) of the Act. There was no response from the said parties to the summons issued by the AO u/s 131 of the Act. Thus the Ld. DR submits that there was no material before the Ld. CIT(A) to restrict the addition to 3% of the total bogus purchases of Rs.11,17,20,486/-. Relying on the decision in N.K. Proteins Ltd. (supra), it is submitted by him that the total purchases of Rs.11,17,20,486/- should have been confirmed by the Ld. CIT(A).
On the other hand, the Ld. counsel for the assessee submits that in support of the contention that the purchases are genuine, the assessee had submitted before the lower authorities the documents viz. (i) Copies of invoices for all the purchases, (ii) Bank statements reflecting the payments made to these parties, (iii) Confirmations from all these suppliers, (iv) Stock records reflecting these transactions, (v) Copies of M/s Vipul Diamond CO No. 121/Mum/2019 ITRs, bank statements, balance sheet and profit and loss account, IEC Code, VAT Registration Certificates, etc. of all these supplies, (vi) Charts showing impugned purchases and corresponding sales made alongwith copies of sale invoices, (vii) Copies of sworn affidavits of concerned seven parties affirming the fact of their sales to the assessee and (ix) Copies of responses of the suppliers in response to notice u/s. 133(6) with postal proof thereon. The Ld. counsel further submits that (i) all possible documents in support of the impugned purchases were submitted as mentioned above, (ii) Corresponding Sales have been accepted without any doubt , (iii) Stock records are maintained and tallied, (iv) all payments have been through banking channel, (v) Confirmations/Affidavits of the parties were filed, (vi) Parties have complied with the notice u/s. 133 (6) confirming the transactions, (vii) Statements of the parties stated to have been recorded by the Department on which reliance is placed for making the impugned addition have not been given to the assessee, (viii) No opportunity to cross examine the parties concerned was afforded to the assessee (ix) Nothing was brought on record by the AO to show that the money came back to the assessee to treat the purchases as non-genuine and (x) Since in the instant case the gross profit margin in respect of impugned purchases is 6.38%, which is higher than the overall gross profit shown by the assessee for the year at 5.77%, no addition/disallowance is warranted. Further reliance is placed by his on the decision in PCIT vs. Mohommad Haji Adam & Co. - High Court of Bombay (ITA M/s Vipul Diamond CO No. 121/Mum/2019 No.1004/1013/1059/1064/1075/1095/1012/1204 of 2016) dated 11.2.2019, M/s. Sejal Exports (India) 3855, 3856, 3857, 3858, 3859 and 3864/MUM/2017), M/s Simoni Gems ITA No. 747, 748, 749, 750, 751 & 752/MUM/2018), M/s lndo Unique Trading Pvt. Ltd. ITA No.6341 & 6721/MUM/2016, Konark Structural Engg. Private Limited ITA No. 837/M/2015 dated 6.09.2019 and Pr. CIT v. Tejua Rohit Kumar Kapadia (T.A. No. 691 of 2017) by Gujarat High Court and the SLP filed by the revenue against this order dismissed by the Supreme Court.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, there was no response to the summons issued by the AO u/s 131 of the Act to the seven parties. The purpose for issuing the summons to the said parties was to establish the genuineness of the purchases. However, we find that as recorded by the AO at para 4.6 of the assessment order, the assessee had filed copy of the ledger accounts, sample bills, bank statements reflecting the above transactions and corresponding sales were provided. In N.K. Proteins Ltd. (supra), during the course of search proceedings at the office premises of NKPL, blank signed cheque books and vouchers of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus purchases by the AO and the entire deposits in bank accounts of these parties were treated as assessee’s income on protective basis. On appeal, the ITAT restricted the addition on account of alleged bogus purchases at Rs.25% i.e. Rs.73,23,322/- of the total purchases amounting to Rs.2,92,93,288/-.
M/s Vipul Diamond CO No. 121/Mum/2019 On further appeal, the Hon’ble High Court modified the order of Tribunal and directed for addition of entire bogus purchases. Then the Hon’ble Supreme Court dismissed the SLP filed by the assessee and confirmed the decision of the High Court for addition of entire income for account of bogus purchases. In the instant case, there was no search proceeding in the premises of the assessee nor any blank signed cheque book, voucher have been found. So the present case is distinguishable from the above decision. 8.1 Contextually, we refer to the decisions of the Tribunal in the case of the assessee having similar type of business. In M/s Naitik Gems v. ITO (ITA No. 4760/Mum/2017) (ITAT ‘SMC’ Bench Mumbai, the assessee was a partnership firm engaged in the business of trading and export of diamonds. The Tribunal has confirmed the profit @ 3% on bogus purchases. In Ratnalaya Diamonds Pvt. Ltd. v. ITO (CO No. 162/Mum/2017) (ITAT ‘C’ Mumbai)), the assessee was engaged in the business of diamond trading. The Ld. CIT(A) restricted the disallowance by estimating the profit @ 6% on the alleged bogus purchases, relying on the CBDT Instruction No. 2/2008 dated 22.02.2008. The Tribunal upheld the above order of the Ld. CIT(A). In ACIT v. M/s Jaipur Jewels (ITA No. 1699/Mum/2017) (ITAT ‘J’ Bench Mumbai), the assessee was engaged in the business of manufacturing and trading of precious and semi-precious stones and jewellery. The Tribunal upheld the profit @ 5% on bogus purchases.