DOLSUN JEWELS,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE 22(1), MUMBAI

The dispute in the present appeal is confined to the addition of ` 1,85,875, sustained by the learned Commissioner (Appeals) on account of bogus purchases.

Brief facts are, the assessee a partnership firm is carrying on business in manufacturing and retail sale of jewellery. For the 2 Dolsun Jewels assessment year under dispute, the assessee filed its return of income on 31st October 2007, declaring total income of ` 9,69,992. Assessment in case of the assessee was completed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) vide order dated 12.11.2009, determining the total income at ` 9,94,990 after addition of ` 25,000 on account of personal use of motor car. Subsequently, on the basis of information received from the DGIT (Inv.), Mumbai, that the assessee is a beneficiary of accommodation entry provided by the benami concerns of one Shri Rajendra Jain, the Assessing Officer re–opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer noticed that as per the report of the DGIT (Inv.), Mumbai, and other material on record, during the search and seizure operation conducted in case of Shri Rajendra Jain and Shri Surendra Jain and other group concerns it was found that they were providing accommodation entries towards bogus purchases through benami concerns under their control. It was found, in the relevant previous year the assessee is a beneficiary of such accommodation entry from two benami concerns of Shri Rajendra Jain as under:– Moulimani Impex Pvt. Ltd. ` 2,80,550 Virtag Jwels ` 3,54,960 Total:– ` 6,35,510

Thus, he called upon the assessee to prove the genuineness of the aforesaid purchases by producing supporting evidences like purchase invoices, delivery challan, bank statement, copy of ledger account, stock register, quantitative tally for sales and purchases, etc. As observed by the Assessing Officer, in response to the query raised by him, the assessee submitted tax invoice with ledger account as well as bank statement. The Assessing Officer observed, though, vide order sheet noting dated 1st December 2014, the assessee was asked to produce the stock register and establish the sales corresponding to purchases made from the above parties, the assessee submitted that it does not maintain any stock register. The assessee also expressed its inability to produce the concerned parties. As observed by the Assessing Officer, notices issued under section 133(6) of the Act to the concerned parties though was served, however, no reply was received from Virtag Jewels. The reply received from Moulimani Impex further corroborated the fact of bogus purchases and accommodation entry. Thus, the Assessing Officer concluded that the purchases made by the assessee from the concerned parties are not genuine. However, he observed, considering the fact that the assessee has manufactured and sold jewellery corresponding to the purchases made, in all likelihood, the assessee might have purchased the goods from grey market avoiding payment of tax and suppressing the profit margin. Accordingly, he proceeded to reject the books of account and added

The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record, agreed with the Assessing Officer that the purchases made by the assessee are not genuine. However, referring to certain judicial precedents, he held that since the Assessing Officer himself has accepted that corresponding sales have been effected, the entire purchase cannot be added but the profit element embedded in such purchases can be considered for addition. Accordingly, he restricted the addition to 25% of the bogus purchases.

The learned Authorised Representative vehemently contesting the addition sustained by the learned Commissioner (Appeals) submitted that the assessee is involved in two purchase transactions with the concerned parties and the items purchased were sold in the same previous year. He submitted, one–to–one relationship between the purchases and sales effected were also established. In this context, he drew my attention to purchase and sale invoices placed in the paper book. He submitted, simply relying upon the information obtained from Sales Tax Department, the Assessing Officer has made the addition without conducting proper enquiry. He submitted, in case

The learned Departmental Representative relying upon the observations of the learned Commissioner (Appeals) submitted that the assessee having failed to prove the genuineness of purchases, addition sustained by the learned Commissioner (Appeals) should be upheld.

I have considered rival submissions and perused materials on record. It is evident, on the basis of specific information received from the Sales Tax Department that the assessee has shown purchases of diamond from two entities belonging to Rajendra Jain Group, who are providing accommodation entries only, the Assessing Officer re– opened the assessment and in course of the assessment proceedings, has called upon the assessee to prove the genuineness of such purchases through proper evidence. Further, the Assessing Officer has also called upon the assessee to produce the concerned parties. However, the assessee expressed its inability to produce the 6 Dolsun Jewels concerned parties before the Assessing Officer. Even, no confirmations from the concerned parties were furnished by the assessee. In these circumstances, the claim of the assessee that purchases made from the two parties are genuine cannot be accepted. Though, it may be a fact that the assessee has established nexus between purchases and sales effected, however, such nexus between purchase and sales only goes to show that the goods have entered the stock of the assessee. It does not prove the source of purchase of such goods. Therefore, the Assessing Officer, in my considered opinion was justified in treating the purchases as bogus and rejecting assessee’s books of account. However, it cannot be ignored that the Assessing Officer himself has accepted the fact that the assessee has established nexus between the purchases and sales. Therefore, only thing which is in doubt is the source of purchases. In these circumstances, the entire purchases cannot be disallowed but only the profit element embedded therein can be considered for addition. Therefore, to that extent, the learned Commissioner (Appeals) was justified in reversing the decision of the Assessing Officer. However, in my view, estimation of profit @ 25% of the bogus purchases is on a much higher side, hence, requires to be scaled down suitably. Considering the nature of business carried out by the assessee and the profit element involved in such business, I am inclined to sustain the addition @ 6% of the bogus purchases. The Assessing Officer is directed accordingly. It is relevant to observe, in 7 Dolsun Jewels course of hearing, the learned Authorised Representative has relied upon a number of decisions as referred to in the note filed by him. In view of my decision above, there is no need to deliberate at length on those decisions. Suffice to say, the decisions rendered in the cases cited before me are on the basis of their own facts, hence, cannot be applied uniformly to all cases. With the aforesaid observations, the ground raised is partly allowed.

In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 26.09.2018