M/S.SAGAR IMPEX,MUMBAI vs. INCOME TAX OFFICER 25(1)(1), MUMBAI

The captioned appeal by the assessee is directed against the order of CIT(A)-37, Mumbai dated 21.09.2017 pertaining to the Assessment Year 2012-13, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 09.12.2016 u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’).

3. Briefly put, the relevant facts are that the appellant before us is a partnership firm which is engaged in the business of import, export and trading of diamonds. For the assessment year under consideration, the Assessing Officer noted that assessee had effected purchase of raw diamonds from three concerns, namely, M/s. Arihant Exports, M/s. Karnavat Impex Pvt. Ltd. and M/s. Sun Diam amounting to Rs.3,57,68,197/- which were doubtful because such parties were part of Shri Rajendra Jain, Shri Sanjay Choudhary and Shri Dharmichand Jain group of cases in whose case search had revealed that they were indulging in providing mere accommodation entries in the nature of bogus sales and bogus loans, etc. and not carrying out actual transactions. For the said reasons, the purchase of raw diamonds made by the assessee of Rs.3,57,68,197/- from the aforesaid three concerns was treated as mere accommodation entries and, following the ratio of the decision of the Ahmedabad Bench of the Tribunal in the case of Vijay Proteins Ltd. vs ACIT, 58 ITD 428 (ITAT Ahmedabad), the Assessing Officer treated 12.5% of such purchases as profit assessable to tax. Thus, an addition of Rs.44,71,025/- was made to the returned income, which has also been affirmed by the CIT(A). Against such an addition, assessee is in further appeal before us.

4. Before us, the learned representative for the assessee canvassed that before the lower authorities, assessee has been contending that the estimation of profit from unsubstantiated purchases at 12.5% was on a very high side and, for that matter, even the Benign Assessment Procedure (BAP) proposed by the Government of India in 2007 was also referred to point out that estimation of profit at 12.5% was much in excess. At the time of hearing, the learned representative pointed out that similar addition was made by the Assessing Officer in the subsequent assessment year and that the very same CIT(A) has estimated the profit at 3% instead of 12.50%. The learned representative also referred to other decisions of the Tribunal wherein under similar situation, the profit has been estimated at a much lower figure, say 2.5% in diamond trade.