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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2007-08. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-30, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The effective grounds of appeal
read as under:
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of @ 3% on bogus purchases of Rs.3,76,56,327/- made from M/s Mohit Enterprises, M/s AZ Jewels and M/s Shree Balaji International, which are group concern of M/s Bhanwarlal group of companies, who were in the business of providing accommodation entries as established by the investigation wing consequent to search action u/s 132 of the I.T. Act, 1961.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the fact that during the search and seizure operation, directors of such parties have accepted on oath that they are providing only accommodation entries and not doing any real business, the treatment of such purchases as being genuine does not hold ground.
3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2007-08 on 28.09.2007 declaring total income at Rs.11,07,490/-. The assessee was engaged in the business of trading in diamonds. The return of income was processed u/s 143(1) of the Act. There was a search and seizure action conducted by the Director General of Income Tax (Inv), Mumbai [in short DGIT(Inv.)] on Shri Bhanwarlal Jain & his group concern on 03.10.2013. As per the documents forwarded by the DGIT (Inv.), the Assessing Officer (AO) noticed that the assessee had obtained accommodation entries of bogus purchases from the following concerns of Shri Bhanwarlal Jain & his group during the financial year 2006-07 relevant to the AY 2007-08 : Sr. No. Name of the entry issuer Fin. Year Amount (Rs.)
1. Mohit Enterprises 2006-07 1,22,04,825/-
2. AZ Jewels 2006-07 2,04,97,647/-
3. Shree Balaji International 2006-07 49,53,855/- Total 3,76,56,327/- On the basis of the above information, the AO issued notice u/s 148 for reopening the assessment. During the course of reassessment proceedings, having examined the details, the AO arrived at a finding that (i) the concerned parties were issuing bills without delivering any goods and services, (ii) the assessee had adopted a modus operandi to reduce his true profits by inflating its expenses by taking accommodation entries from such parties, (iii) in the books of accounts of the assessee, the purchases to the extent made from the above parties remained unverifiable, (iv) mere filing of evidence in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt; payment by account payee cheques are not sacrosanct. With the above observations, the AO held that the assessee indulged in non-genuine transaction and brought the above sum of Rs.3,76,56,327/- to tax.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In the order dated 09.03.2017, the Ld. CIT(A) has observed that two aspects need to be taken into consideration in such circumstances apart from the taxes not paid on such grey market purchases. First, these diamonds in the grey market are always cheaper than the diamonds sourced from the genuine dealer. This is because, the genuine dealer would charge his incidental cost including the whole administrative cost while selling the goods in the market, whereas the petty dealers in the grey market do not carry such incidental charges on such sales, wherein they are only looking for a quick profit. Secondly, there is always an element of discount in the case of instant cash purchase. Thus the Ld. CIT(A) held as under: “Taking into consideration of all the facts and circumstances of the case and the material available on record and the AO himself adopted 3% as the profit margin on the total purchases in the subsequent scrutiny assessment passed for the AYs 2011-12, 12-13 and 13-14, on the total purchases for those years by stating the above stated reasons which are convincing, and also one of the party is common for this assessment year, in my considered opinion, if the same percentage is adopted for this year it will take care the additional profit margin gained from the non-genuine transactions entered with the dummy concerns of Shri Bhanwarlal Jain group. In view of the above, AO is directed to restrict the addition @ 3% on the purchases of Rs.3,76,56,327/- made from the three parties, as the profit element embedded for this year also. Accordingly, the issue raised in the ground of appeal
is treated as ‘Partly Allowed”.
5. Before us, the Ld. DR submits that the bogus purchases amounting to Rs.3,76,56,327/- were made from M/s Mohit Enterprise, M/s AZ Jewels and M/s Shree Balaji International, which are group concerns of M/s Bhanwarlal group of companies, who were in the business of providing accommodation entries as found during the course of search on 03.10.2013 by the DGIT (Inv), Mumbai. It is stated by him that the Directors of such parties have accepted on oath that they are providing only accommodation entries and not doing any real business. Therefore, the Ld. DR submits that the estimation @ 3% adopted by the Ld. CIT(A) for arriving the profit on such bogus purchases is without any basis and the addition of Rs.3,76,56,327/- made by the AO be restored.
6. On the other hand, the Ld. counsel of the assessee files a copy of the order of the ITAT ‘C’ Bench Mumbai in the case of ACIT v. M/s Zodiac JRD MKJ Ltd. (ITA No. 1561 & 1562/Mum/2017) and CO Nos. 197 & 198/Mum/2017 for the AYs 2007-08 & 2009-10 and submits that facts being identical, the order of the Ld. CIT(A) estimating the profit @ 3% of such disputed purchases be confirmed.
We have heard the rival submissions and perused the relevant materials on record. A perusal of the assessment order dated 30.03.2015 passed by the AO clearly indicates that he has relied on the findings by the DGIT (Inv), Mumbai on the search and seizure action conducted in the case of Shri Bhanwarlal Jain and his group concern on 03.10.2013. No independent inquiry has been made by the AO. No corroborative evidence has been gathered by the AO. A similar issue was there before the Tribunal in the case of M/s Zodiac JRD MKJ Ltd. (supra). In that case also purchases were made from Bhanwarlal Jain group. The Tribunal, observing that only the profit element embedded in such purchases be brought to tax, confirmed the estimation @ 3% adopted by the Ld. CIT(A) on such bogus purchases. Facts being identical, we follow the above order of the Co-ordinate Bench and uphold the order of the Ld. CIT(A).