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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-40 [in short ‘CIT(A)’], Mumbai and arise out of the assessment completed u/s 143(3) r.w.s. 147 of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience.
Niru Impex 2 & 6652/Mum/2012 2. Facts being identical, we begin with the assessment year 2006-07. The 1st ground of appeal is regarding the reopening of assessment made u/s 147 by the Assessing Officer (AO). The Ld. counsel of the assessee has filed a written submission dated 18.01.2017 stating that the above ground of appeal is not pressed. Considering the same, the 1st ground of appeal is dismissed as not pressed.
3. The 2nd and 3rd grounds of appeal address a common issue and therefore, they are discussed together below. The 2nd ground of appeal The learned CIT-(A) has erred in confirming an addition of Rs.7,16,98,624/- and Rs.45,17,013/- being undisclosed income (bogus purchases) and undisclosed income declared by Mr. Anil Vanani, respectively. The addition is unjust, unfair, contrary to the facts of the case and not as per applicable provisions of the law.
The 3rd ground of appeal Without prejudice, the appellant submits that declared additional income be reduced by the income already included as per the rate of G.P. since disclosed in the return and assessment.
Briefly stated, the facts of the case are that the AO completed the assessment u/s 143(3) on 30.09.2009 assessing the income at Rs.18,98,59,230/-. Subsequently, the Deputy Director of Income Tax (Inv.), Unit-VII(1) & (2), Mumbai (hereinafter ‘DDIT’) carried out a survey u/s 133A in the business premises of certain entities who were involved in providing accommodation entries through their various concerns floated for the purpose of providing bogus purchase/sale bills Niru Impex 3 & 6652/Mum/2012 to various entities who were interested in taking such bills for a commission. The entities and premises covered u/s 133A are as under: S No. Nate of Entities Premises covered u/s 133A of the Act 1. Parshvanath Germs Pvt. Ltd. 206, Panchratna, Opera Karishma Diamonds Pvt. Ltd. House, Simran Gems Mumbai-400004 Krishna Diam Mihir Diamond Gautam Jain Gyanchand B Jain 2. Kanak Impex 122A, Panchratna Building Kamdhenu Gems Pvt. Ltd. 1st floor, Gautam Jain Mumbai Mahendra Jain During the course of survey, the DDIT found that the above group of individuals had created the following entities to provide accommodation entries/bogus bills 1. Parshvanath Germs Pvt. Ltd., 2. Karishma Diamonds Pvt. Ltd., 3. Simran Gems, 4. Krishna Diam, 5. Mihir Diamond, 6. Kanak Impex 7. Kamdhenu Gems Pvt. Ltd. 4.1 Further it was found that the assessee in the instant case was one of the beneficiaries who had accepted such accommodation bill. Also, in respect of purchases made with the entities namely (i) M/s Simran Gems, (ii) M/s Krishna Diam, (iii) M/s Mihir Diamonds and (iv) M/s Kanak Impex, Shri Anil B. Vanani, partner of the assessee-firm submitted before the AO as under: "Your honour, the department had asked the details in connection with the certain purchases made of rough diamonds and polished diamonds and the details of creditors for AYs. 2006-07, 2007-08 & 2009-10.
Niru Impex 4 & 6652/Mum/2012 It has been brought to your kind attention that certain purchases of rough diamonds and polished diamonds made during the above said assessment years from the following parties may not be considered genuine purchases by the Income Tax Department (i) M/s Simran Gems, (ii) M/s Krishna Diam, (iii) M/s Mihir Diamonds, (iv) M/s Kanak Impex Your honour, but we had not agreed on this view due to the following reasons- (a) The firm had made the purchases from the above parties by account payee cheques and vouchers support the purchases (b) The above transactions are fully accounted in stock register of the firm. We are enclosing the stock registers highlighting & mentioning the concerned party's names on the same for your reference (c) The firm manufactured the polished diamonds after the purchases of rough diamonds from the above parties and the same had been fully exported outside India. (d) The firm has also realized the money for the exports during the respective accounting years and those, which have remained to be realized, have since been realized in the succeeding accounting year. All the money realized through RBI only. (e) Since the firm is in the business of exports of polished diamonds, 95.64% of the total turnover of the firm for the assessment years 2006-07 was exports, 86% for assessment year 2007-08 respectively. Also 86% of the total Niru Impex 5 ITA Nos. 6651 & 6652/Mum/2012 turnover of the firm during the current accounting year (01.04.2008 to 31.03 2009) i.e. until date hereof also is exports. Therefore, your honour, on the above facts there is not apparent ground for holding that the purchases are not genuine. Without prejudice to the above facts and with a view to avoid the protracted litigation with the department in respect of the genuineness of their purchase, the firm has agreed to offer the gross profit percentage of purchases for the AY 2006-07, 2007-08 and the running A.Y 2009-10. The firm is agreed offer an additional income of the firm according to the above GP percentage of for the respective assessment years. The same has been worked out for the same as under – A.Y. Amount of purchases G.P. Additional (Rs.) income (Rs.) 2006-07 7,16,98,624 6.30% 45,17,013 2007-08 22,11,65,706 6.63% 1,46,63,286 2009-10 5,36,66,695 5.25% 33,92,219 The firm will accordingly pay the taxes on the additional income and will voluntarily offer the same for taxation with interest and file the revised return for A.Y. 2006-07 and 2007-08. A regular return will be filed for AY 2009-10, which is due on 30.09.2009 by offering the above additional income.” 4.2 During the course of reassessment, the AO relied on the affidavit dated 07.02.2009 filed by Shri Anil B. Vanani. During the year under consideration, the assessee had made purchases of Rs.7,16,98,624/- from M/s Simran Gems, M/s Krishna Diam, M/s Mihir Diamonds and Niru Impex 6 & 6652/Mum/2012 M/s Kanak Impex. The AO held that the claim of the assessee that the purchases were genuine and bona fide could not be accepted as during the course of survey, the bill providers had candidly admitted that they had provided such accommodation entries. Therefore, he made an addition of not only the additional income of Rs.45,17,013/- offered by the Shri Anil B. Vanani in his affidavit dated 07.02.2009, but also made an addition of Rs.7,16,98,624/- being undisclosed investment in guise of bogus purchases.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). Since the reopening of assessment was done by the AO on a statement dated 20.10.2008 given by Shri Gautam Jain, during the course of survey u/s 133A, the Ld. CIT(A) directed the AO to provide an opportunity to cross-examine Shri Jain. Such opportunity was provided to the assessee by the AO on 08.02.2012 and a statement on oath of Shri Gautam Jain was also recorded u/s 131. The AO also submitted a remand report incorporating the above to the Ld. CIT(A).
The Ld. CIT(A) observed that the declaration of additional income was made by the assessee voluntarily to avoid any prosecution proceeding against the partners and also to buy piece. The assessee then sought to retract from the said declaration contending duress under undue pressure. The Ld. CIT(A) observed that there was no evidence to prove so, particularly when the statement itself was a voluntary one prepared with the help of their tax advisors. The Ld. CIT(A), therefore, Niru Impex 7 & 6652/Mum/2012 concluded that : “In my considered opinion, in the case of bogus purchases, the element of investment going into such purchases has to be treated as additional income besides the profit element. In the case of bogus sales, there is scope of rotation of some investment a number of times. But, the bogus purchase has a simple effect of increasing the appellant’s expense, thereby reducing his income by the amount of bogus purchase. This was also known to the appellant at the time of confession of additional income. It is not out of place here to mention that such confession was given by the appellant in the presence of his tax advisor, who being a professional Chartered Account, had correctly advised the appellant to come clean on these transactions. Therefore, I see no justification in bringing to tax only the profit element, and ignoring the investment portion. Accordingly, the action of the Ld. AO in bringing to tax the amount of purchase from these firms alongwith the profit thereon is upheld.”
Before us, the Ld. counsel of the assessee files a Paper Book (P/B) and submits that during the course of survey, the statement on oath of Shri Gautam B. Jain was recorded on 20.10.2008. From the statement of Shri Jain, it is clear beyond doubt that the name of the assessee-firm was not referred to as the one to whom accommodation bills were issued. The assessee-firm had purchased rough and polished diamonds from M/s Mihir Diamonds, M/s Krishna Diam and M/s Simran Gems of Shri Gautam B. Jain. The summons were issued to the partner of the assessee- firm by the AO on the basis of the aforesaid statement of Shri Gautam B. Jain. In response to it, Shri Anil B. Vanani, partner of the assessee-firm filed his affidavit dated 07.02.2009 before the AO. In the Niru Impex 8 & 6652/Mum/2012 aforesaid affidavit, Shri Vanani had categorically stated that the assessee-firm had purchased rough diamonds and/or polished diamonds from M/s Mihir Diamonds, M/s Krishna Diam and M/s Simran Gems and the rough diamonds were manufactured and thereafter the polished diamonds were exported. Secondly, it was stated that the purchase of rough diamonds/polished diamonds from the aforesaid three concerns were recorded in the regular books of account and also in the stock statements maintained regularly by the assessee-firm which were produced before the AO in the course of the assessment proceedings for AYs. 2006-07 & 2007-08. It is also submitted that in the aforesaid affidavit Shri Anil B. Vanani, without prejudice to the aforesaid, in order to avoid protracted litigation agreed to offer additional gross profit of 6.30% in AY 2006-07 in respect of the purchases of diamonds effected from the aforesaid three concerns and accordingly offered additional profit/income of Rs.45,17,013/- in the AY 2006-07. The Ld. counsel submits that the AO overlooked the fact that the said purchase of diamonds are already recorded in the stock register and export sales of the said diamonds were effected and recorded in the regular books of accounts and thus income arising therefrom is offered and taxed in the case of the assessee-firm. Our attention is drawn to the affidavit of Shri Gautam B. Jain dated 16.10.2008, wherein he had retracted his statement recorded on 20.12.2008. Therefore, it is stated that the statement of Shri Jain cannot be accepted without there being corroborative evidence in support thereof.
Niru Impex 9 & 6652/Mum/2012 The Ld. counsel submits that during the course of appellate proceedings, at the instance of the Ld. CIT(A), the assessee was given an opportunity to cross-examine Shri Gautam B. Jain and accordingly his statement was recorded by the AO on 08.02.2012. It is pointed out by him that the Ld. CIT(A) overlooked the above cross-examination while confirming the addition made by the AO. It is submitted by him that the Ld. CIT(A) had called for the remand report from the AO in order to give the assessee an opportunity to cross-examine Shri Gautam Jain which was demanded by the assessee in the course of proceedings. In the remand report, the AO has not commented upon the examination-in-chief recorded by the AO and thereafter, the cross-examination of Shri Gautam Jain by Shri Anil B. Vanani, partner of the asssessee-firm. It is stated by him that the examination-in-chief and cross- examination of Shri Gautam Jain on 8.2.2012 clinches the issue in as much as Shri Gautam Jain has accepted that the transactions of purchase of rough diamonds/polished diamonds by the assessee-firm from his various concerns were genuine for which he had produced the stock registers, sales register, account confirmation, Bank statement, audited accounts and returns of income. The aforesaid facts have been admitted once again in the cross- examination by Shri Gautam Jain. Finally it is stated by him that identical addition made by the AO in AY 2009-10 was deleted by the Ld. CIT(A). Considering the above, the Ld. counsel submits that the addition made by the AO in respect of the alleged bogus purchases may be deleted.
Niru Impex 10 & 6652/Mum/2012 7. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). He draws our attention to the statement on oath recorded from Shri Gautam Jain dated 20.10.2008 and the affidavit dated 07.02.2009 of Shri Anil B. Vanani. Referring to the above documents, the Ld. DR submits that the order passed by the Ld. CIT(A) be upheld.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. Having gone through (i) the statement of Shri Gautam B. Jain dated 20.10.2008 recorded on oath during the course of survey u/s 133A, (p. 178-190 of P/B), (ii) the affidavit dated 16.12.2008 filed by Shri Gautam B. Jain retracting his statement (p. 191-192 of P/B), (iii) affidavit dated 07.02.2009 filed by Shri Anil B. Vanani (p. 59-65 of P/B) and (iv) examination-in-chief and cross-examination dated 08.02.2012 of Shri Gautam Jain, (p. 193-194 of P/B), we are of the considered view that the affidavit dated 07.02.2009 filed by Shri Anil B. Vanani is the fulcrum and it would resolve the contentious issues in the instant case. It is stated therein that the assessee-firm is prepared to offer additional income of Rs.45,17,013/- (at the GP percentage 6.30 on purchase of Rs.7,16,98,624/-) for AY 2006-07 and Rs.1,46,63,286/- (at the GP percentage 6.63 on purchases of Rs.22,11,65,706/-) for AY 2007-08.
The Hon’ble Supreme Court in Chuharmal v. CIT (1988) 172 ITR 250 (SC) pointed out to the following guidelines in CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), which reads as under:
Niru Impex 11 & 6652/Mum/2012 “Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law.”
Based on the facts and circumstances of the case as discussed hereinbefore, we are of the considered view that end of justice will be met in this case, if GP ratio of 10% on alleged bogus purchase is added to income of the assessee against which credit for the declared GP ratio will be granted by AO. In a nutshell, the AO is directed to restrict the disallowance of alleged purchase of Rs.7,16,98,624/- by estimating the same at 3.7% (10% minus 6.30%) for the AY 2006-07. Facts being identical our decision for the AY 2006-07 applies mutatis mutandis to AY 2007-08. Accordingly, the AO would estimate the profit element embedded in the purchase of Rs.22,11,65,706/- @ 3.37% (10% minus 6.63%) for A.Y.2007-08. We make it clear that we are not disturbing the additional income of Rs.45,17,013/- offered by the assessee for A.Y. 2006-07 and Rs.1,46,63,286/- for A.Y. 2007-08.