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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-52, Thane, [in short CIT(A)], in 2 | P a g e ITAs No.2833 /Mum/2017 CC-4(2)/IT-38/2015-16 dated 19.01.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle- 4(2), Mumbai (in short ACIT/ AO) for the A.Y. 2007-08 vide order dated 27.03.2015, under section 143(3) read with section 147 of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) directing the AO to restrict the addition made by AO being estimating profit percentage at the rate of 8 % on bogus purchases.
Briefly stated facts are that the assessee engaged in the business of Manufacturing and exporters of Jewellery. The AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that the assessee has made purchases from hawala parties, as listed in hawala dealers by the Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 20,61,90,678/- as admitted by these hawala dealers in their deposition before the authorities. The same reads as under: - Sl. Name of party Amount No.
Krishna Diamond Pvt. Ltd. 6,43,36,459 2. Mihir Diamond (Prop. Gautam B Jain) 13,33,34,266 3. Karishma Diamonds Pvt. Ltd. 85,19,953 Total 20,61,90,678 4. During the course of assessment proceedings and during appellate proceedings, the assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to the AO, the assessee failed to establish the genuineness of the purchase and accordingly, he made
3 | P a g e ITAs No.2833 /Mum/2017 addition of unproved purchase at 8% of ₹ 1,64,95,254/- to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who restrict the addition at 6% of ₹ 1,23,71,440/- by observing in para 18 by following the CBDT instruction, as under: -
“18. Coming to the alternative argument of the assessee that the rate of profit of 8% was on higher side, it may be clarified that this rate had been applied by the AO on the basis of BAP, a presumptive tax scheme, brought in by the Govt. of India for gems and jewellery industries introduced in the budget for the year 2007-08 and therefore, the AO could not be faulted on that account. However, it is gathered that the CBDT through instruction No. 2/08 dated 22/02/2008 has revised the rate of 8% to 6% in respect of gems and jewellery business. Therefore, considering the overall facts of the case, I am of the view that it will be fair and reasonable to apply a rate of 6% following the CBDT instruction, as against the rate of 8% applied by the Assessing Officer. Therefore, the corresponding profit the assessee on sale of Rs. 20,61,90,678/- works out to ₹ 1,23,71,440/-. I would like to clarify that the above principle to apply profit rate in respect of bogus purchases where quantitative details are available has been upheld by the Hon’ble Gujarat High Court in the case of Simit P. Sheth in which a profit
4 | P a g e ITAs No.2833 /Mum/2017 rate of 12.5% was upheld by the Hon’ble High Court in respect of other business/ trade. Therefore, considering the CBDT instruction, a rate of 6% in respect of Gem/ jewellery business is quite fair and reasonable. Consequently, the claim of the assessee towards application of rate of 2.5% is rejected as it does not have any sound basis.
In view of the above discussion, out of the total addition of ₹ 1,64,95,254/-, an amount of Rs. 1,23,71,440/- is upheld and the balance amount of ₹ 41,23,814/- is directed to be deleted. Consequently, Ground No. 2 is partly allowed.”
We have considered the issue and gone through the facts and circumstances of the case. Before us, the assessee has filed copy of Tribunal order in assessee’s sister concern in the case of B. Vijaykumar Jewellers vs. DCIT in vide dated 22.08.2017, wherein Tribunal has accepted the restriction of 3% net profit on the alleged bogus purchase and for this Tribunal observed in Para 5 as under: -
“5. I notice that the assessee could not conclusively prove that the diamonds were purchased only from the concerns stated above, since the assessee did not produce those parties before the AO. Hence one of the possible views is that the assessee could have 5 | P a g e ITAs No.2833 /Mum/2017 purchased the diamonds from some other person and could have obtained only the bills from the above said concerns. There is also a possibility; in that case, the assessee could have purchased goods at a price lower than the apparent consideration. The task of the tax officials was to determine the profit element embedded in the said purchase. The AO has estimated the same at 8% and the Ld CIT(A) has estimated the same at 6%. According to Ld A.R, these diamonds have been exported and hence there will not be much variation in the price as the prices of diamonds would depend upon the quality. There is merit in this submission also. The Ld A.R, in the alternative, submitted that the profit element may be estimated at a reasonable rate. I have noticed earlier that the assessee has declared transactional margin of 5.61% on the sales. Hence, considering these aspects, I am of the view that the profit estimated by Ld CIT(A) at 6% is on the higher side. Accordingly I modify the order passed by Ld CIT(A) and direct the AO to sustain the addition to 3% of the value of alleged bogus purchases and in my view, the same would meet the ends of justice. I order accordingly.”
6 | P a g e ITAs No.2833 /Mum/2017 6. Hence, respectfully following the Tribunal decision in assessee’s sister concern (supra), we direct the AO to restrict the net profit at 3% of the bogus purchases.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 21.08.2019. Sd/- Sd/- (एम बालगणेश / M BALAGANESH) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददिािंक/ Mumbai, Dated: 21.08.2019 स दीप सरकार, व.यनजी सधिव / Sudip Sarkar, Sr.PS