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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAM LAL NEGI
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’).
In this case, although the assessee has raised multiple Grounds of appeal, but the solitary dispute relates to an ad hoc addition of Rs.44,71,025/- sustained by the CIT(A), being 12.5% of the bogus purchases.
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.
The ld. DR appearing for the Revenue has not controverted the factual matrix but pointed out that the profit element is a matter of estimation and that the estimation made by the CIT(A) be confirmed.
We have carefully considered the rival submissions. The sum and substance of the dispute before us relates to the estimation of profit with respect to unsubstantiated purchases. The plea of the appellant before us is that in such like cases involving purchase of precious and semi-precious diamonds and gemstones, profit estimation is done generally around 2.5 to 3%. The said estimation is sought to be supported by the presumptive rates recommended by the task force set-up by the Central Government for business of manufacturing and/or trading of diamonds. Before the lower authorities, assessee had also referred to BAP scheme wherein the presumptive tax rate was also recommended at a much lower figure than the estimation made by CIT(A) in the impugned order. It is also notable that for another Assessment Year of 2011-12, in a similar situation, CIT(A) has estimated the addition at 3% of the unsubstantiated purchases. Considering all these aspects, in our view, the estimation made by CIT(A) in the impugned year of 12.5% is untenable having regard to the business being carried on by the assessee. We deem it fit and proper to direct the Assessing Officer to estimate the profit on the unsubstantiated purchases @ 3% of such purchases and delete the balance of the addition. Thus, on this aspect, assessee partly succeeds.
In the result, appeal of the assessee is partly allowed as pronounced in the open court in the presence of both the parties at the conclusion of the hearing on 18th April, 2018.