SMARU GEMS,MUMBAI vs. ITO 19(3)(3), MUMBAI

This appeal by assessee is directed against the separate orders of ld. CIT(A)-52, Mumbai dated 27.04.2018, which in turn arises from the assessment order dated 25.03.2015 passed under section 143(3) r.w.s 147 of the Act for Assessment Year 2007-08. The assessee has raised the following grounds of appeal:

On appeal before the ld. CIT(A), the assessee specifically contended that the assessee/partnership firm was created only on 12.10.2006 vide partnership deed dated 12.10.2006, partnership firm/assessee was allotted PAN only after 12.10.2016. The assessee-firm was allotted PAN No. ABGSF6292P. The assessee further contended that they have not made purchases any material from the said hawala dealer namely M/s Vitrag. The ld. CIT(A) after considering the submission of assessee concluded that Assessing Officer not doubted whether the purchases made from the said party as claimed by assessee. However, the ld. CIT(A) was of the view that the tax can be levied only on the real income. It is further concluded that profit from the business cannot be 3 Mum 2018-Smaru Gems. ascertained without deducting cost of purchases from sale otherwise it would amount to levy of income and gross receipt or sales which is not permissible unless it is specifically authorise to do so in the particular provision contained in the Act. The ld. CIT(A) by following the decision of Hon’ble Gujarat High Court in Hariram Bhambhani (ITA No. 313 of 2013) and Simit P. Sheth (38 Taxmann.com 385) held that not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. The department has considered 6% of profit margin in case of Gems & Jewellery is reasonable for an assessee which is not invalid in hawala purchases. The ld. CIT(A) concluded that it would be appropriate after reasonable margin arising to the assessee on account of alleged hawala purchases is adopted of 8%, however, the Assessing Officer made addition on account of additional profit margin arising of hawala purchase, we should reduce the profit margin already shown by assessee in its books from the said profit margin adopted at 8% of alleged hawala purchase and granted partial relief to the assessee. Before us, the ld. AR of the assessee vehemently submitted that the assessee came into existence only on 12.10.2006 and the assessee has no occasion to make purchases on 01.04.2006 and on 30.06.2006.

We have noted that the assessee has placed on record copy of partnership-deed dated 12.10.2006 page no. 1 to 13, copy of PAN Card 4 Mum 2018-Smaru Gems. issued to the assessee allotting PAN No. ABGFS6292P bearing dated 12.10.2006 (date of incorporation). The assessee in reply to the show- cause notice before the Assessing Officer has specifically stated that the assessee has not made any purchase or sale transaction with M/s Vitrag during the Financial Year 2006-07. We have noted that despite the specific contention of the assessee that they have not made any purchases from M/s Vitrag. The Assessing Officer concluded that the assessee must have purchased the Diamond in the grey market from the regular dealer. The ld. CIT(A) also confirmed the action of Assessing Officer without appreciating the documentary evidences furnished by assessee with regard to date of incorporation/creation of tenancy, PAN Card and registration under Maharashtra Value Added Tax. Therefore, we found force in the contention of ld. AR of the assessee that during the relevant period in which the alleged hawala trader i.e. M/s Vitrag has shown the transaction, the assessee was not in existence. Therefore, the grounds of appeal