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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’, KOLKATA
Before: Shri P.M. Jagtap, AM]
order : May 24, 2018 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 13, Kolkata dated 25.09.2017.
The assessee in the present case is a partnership firm which is carrying on the business of jewelers. The return of income for the year under consideration was filed by it originally on 31.10.2007 declaring a total income of Rs. 5,20,450/-. The said return was initially accepted by the A.O. under section u/s 143(1) on 27.02.2009. The A.O, thereafter received information that M/s. Vitrag Jewels was one of the firms providing bogus entries. In his statement recorded by the department, Shri Rajendra Jain, employee of the said concern confessed that he was managing various concerns in order to provide bogus sale bills to domestic concerns for the diamonds. He stated that the concerns which were purchasing diamond in cash from Grey
Assessment Year: 2007-08 Hiralal Motilal Jewellers Market were taking bogus bills to regularise their purchases in the books and such bills were provided by the various concerns including M/s. Vitrag Jewels. The names of various concerns which had taken such bogus bills were also provided by Shri Rajendra Jain. Since the assessee firm was one of such concerns who had taken bill of Rs. 12,39,532/- from M/s. Vitrag Jewels on 20.02.2017, the assessment was reopened by the A.O. and a notice under section 148 was issued by him on 29.03.2014 after recording the reasons. In reply, a letter dated 28.04.2014 was filed by the assessee requesting the A.O. to treat the return originally filed by it on 31.03.2007 as the return filed in response to notice under section 148. During the course of reassessment proceedings, reasons recorded by him for reopening the assessment were furnished by the A.O. to the assessee and vide letter dated 26.09.2014, the assessee raised its objections challenging the validity of reopening. The A.O. did not find merit in the said objections and rejected the same vide a separate order passed on 29.09.2014. During the course of reassessment proceedings, documentary evidence was filed by the assessee in support of its case that the purchase of diamonds from M/s. Vitrag Jewels amounting to Rs. 12,39,532/- was genuine. The same however was not found to be satisfactory by the A.O. and by treating the purchases of Rs. 12,39,532/- to be bogus, he made addition to the total income of the assessee to that extent in the in the assessment completed under section 143(3)/147 vide an order dated 29.10.2014.
Against the order passed by the A.O. u/s 143(3)/147, an appeal was preferred by the assessee before the Ld. CIT(A) challenging the validity of the said assessment as well as disputing the addition made
Assessment Year: 2007-08 Hiralal Motilal Jewellers therein on account of alleged bogus purchases. The Ld. CIT(A) however did not find merit in the case of the assesses on both the issues and after upholding the validity of the assessment made by the A.O. under section 143(3)/147 of the Act, he also confirmed the addition made by the A.O. on account of the alleged bogus purchases for the following reasons given in his impugned order: “In this case it is clear that the aforesaid concern M/s. Vitrag Jewels has not actually purchased any material nor sold any material, only bills were issued which shows that the appellant has purchases diamond from Grey Market in cash, out of books, which has been subsequently recorded in the books of account by taking bogus purchase bills. Thus, the capital in cash deployed by the appellant at the time of such purchase was out of books and no argument has been offered by the appellant on this issue. In case of Income Tax Officer, Ward 6(3), New Delhi vs M/s. Meghuna Towers Pvt. Ltd. and Vica Versa dated August 4, 2016 ITAT Delhi, held that ‘assessee is one among many persons who may have attempted to benefit from the alleged racketeering. When investigation wing of Income Tax Department has busted the racket of bogus accommodation entries; and when the alleged entry operators have admitted on oath that they ran this racket; and when name of the assessee is discovered as one of the beneficiaries of the alleged racket; and when amounts are actually found in the books of assessee to be credited in the name of alleged entry operators; burden was on the assessee to prove that it was not a beneficiary of the racket’. In this case the appellant failed to prove that his transaction was affected through delivery and no attempt was made to produce the parties from where the purchase has been made. Keeping in view of the aforesaid fact and decision of Hon’ble Supreme Court in case of N.K. Protiens Ltd. (SLP) 269 of 2017, wherein entire bogus purchase was treated as income of the appellant. The action taken by the A.O. is hereby upheld and the grounds of appeal are dismissed.”
Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
In ground no 1 and 2, the assessee has raised the preliminary issue challenging the validity of the assessment made by the A.O.
Assessment Year: 2007-08 Hiralal Motilal Jewellers under section 143(3)/147 on the ground that the reopening of assessment itself was invalid while in ground no 3 and 4, the assessee has challenged the addition of Rs. 12,39,532/- made by the A.O. and confirmed by the Ld. CIT(A) on account of the alleged bogus purchase of diamonds.
I have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the learned representatives of both the sides, the issue involved in ground no 3 and 4 of the assessee’s appeal relating to addition made on account of the alleged bogus purchase of diamonds is squarely covered in favour of the assessee inter alia by the decision of the Tribunal rendered in the case of M/s. M.B. Jewellers and Sons vs DCIT vide its order dated 28.03.2018 passed in ITA 1/Kol/2017. A copy of the said order is also placed on record and perusal of the same shows that similar issue has been decided by the Tribunal in favour of the assessee vide para no 7 (including para 7.1 to 7.5) which read as under: “7. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of pages 1 to 100. We find that the assessee was maintaining proper books of accounts including all the details, stock registers, bills nad vouchers in respect of its traded goods. All the purchases from the parties were made against proper bills and such goods were used in making jewellery and ornaments which were further sold as finished goods at profit and all major items of purchases are identifiable and are matched with subsequent sales. In respect of specific purchases made from M/s Vitrag Jewels (i.e the disputed purchases before us), the assessee had furnished the date of purchase together with its quantity, rate and value and its corresponding sales on various dates and items which were lying as closing stock in the books together with the parties to whom such diamonds were sold and cheque realization thereon from the said customers. These details are enclosed in page 59 of the paper book filed before us. We find that the sales made by the assessee has been accepted
Assessment Year: 2007-08 Hiralal Motilal Jewellers by the revenue. Hence the natural corollary is without the purchases, there cannot be any sales. But it does not automatically mean that the purchases would be entitled for deduction. The purchases would be eligible for deduction only when the source for such purchases are explained. In the instant case it is the case of the revenue that the assessee had issued account payee cheques to M/s Vitrag Jewels (supplier of diamonds to assessee) and had received cash in return from them and the said cash is utilized by the assessee for purchase of diamonds from unknown parties in the grey market. We find that there is absolutely no evidence that is brought on record to prove that the assessee had indeed received cash back from Vitraj Jewels in lieu of cheque issued to them or from any other party except making a wild allegation to that effect and by placing reliance on the statement of Shri Rajendra Jain. We also find that Shri Rajendra Jain had subsequently retracted his statement by way of an affidavit deposing before the Notary Public on 9.1.2014 (enclosed in pages 96 to 100 of paper book). He had also explained the circumstances under which the original statements had been recorded and effectively stated that the same was recorded under coercion and the statement recorded therein were as per the desire and will of the DDIT (lnv) who recorded the statement. Shri Rajendra Jain had also initially filed an affidavit on 21.10.2013 (enclosed in pages 91 to 95 of paper book) retracting the statement recorded by DDIT (lnv) . He also filed a letter to DCIT, Central Circle -4, Surat on 31.10.2014 explaining the entire facts of the case and the circumstances warranting him to file two affidavits (i.e on 21.10.2013 and 9.1.2014 reiterating the same) [enclosed in pages 88 to 90 of paper book]. Hence the version of the revenue that the assessee had received cash back in lieu of cheques issued to suppliers of diamonds, stands negated pursuant to the retraction of statement of Shri Rajendra Jain which is the only source of evidence available with the revenue and which has been heavily relied upon by the revenue. A statement once retracted cannot be treated as a reliable source or an evidence to allege that the assessee had received cash back in lieu of cheques issued.
7.1. We find that the tax audit report of the assessee clearly mentioned that the assessee is maintaining regular books of accounts including the day to day stock register and quantity and quality details of stock from which purchase, consumption and sale of stock was also proved. We find that in response to the query raised by the Ld. AO regarding the purchases made from M/s Vitrag Jewels and AVI Exports, the assessee furnished the bills containing the name address as well as the sales tax numbers both Gujarat and Central sales tax together with the PAN of those parties from whom goods were purchased. The payments were made to them by Assessment Year: 2007-08 Hiralal Motilal Jewellers account payee cheques. We find that the tax auditor had reported the complete quantitative details of opening stock purchases, stocks transfere4 sales, closing stock in respect of each showroom in respect of Gold, Gold ornaments, diamonds, pearls and coloured stones which are enclosed in page 35 of the paper book. The Ld. AO vide his letter dated 7.7.2014 asked the assessee the details of purchases made from M/s Vitrag Jewels and M/s AVI Exports (though no addition has been made in respect of purchases from this party) in FYs 2005-06, 2006-07 and 2007- 08 and the corresponding sales made thereon. We find that the assessee filed a reply thereon vide letter dated 19.8.2014 enclosed in pages 46 to 52 of paper book. In the said letter the assessee had explained the modus operandi of its purchase activity in the following manner: ‘It has been asked to explain manner of receipt of above said items of purchases in the hands of the assessee. It is to submit that normally as a general business practice, brokers/dealers from sarrafa bazaar/jewellery market (mainly from Surat and Mumbai), visit a prospective buyer’s business place and display various items of diamonds and precious/semi-precious stones and the buyer makes the final selection and bills are subsequently raised by the seller directly. Naturally we had also been purchasing diamonds, precious and semi-precious stones from outside dealers in the above manner. Furthermore, at time partners, their close family members or family friends also visit the sellers place partners. Sometimes, orders are also placed over phone and goods are sent through trusted and regular couriers. As a normal business practice, goods are regularly received in the above stated manner. However, at the moment it is not possible to exactly recollect how the above consignments were received because of long time gap’
7.2 We find that the assessee had furnished the summary of diamonds movement for the period 1.4.2005 to 31.03.2007 indicating the quantity and value in opening balance, purchases, sales and closing balance (enclosed in page 53 of paper book). We find that the assessee had also filed the purchase bills of M/s. Vitrag Jewels (enclosed in pages 68 to 72 of the paper book) together with the ledger account of M/s. Vitrag Jewels as appearing in the books of the assessee firm for the period 1.4.2006 to 31.03.2007 and for the period 1.04.2007 to 31.03.2008 wherein the payments were made to M/s. Vitrag Jewels by account payee cheques. Admittedly the payments were made to M/s. Vitrag Jewels through account payee cheques on 22.02.2008 (Rs. 10,00,000/-) and on 27.03.2008 (Rs. 5,57,470/-). Hence the primary allegation of the Ld. AO that the assessee had received the csh back in lieu of account payee
Assessment Year: 2007-08 Hiralal Motilal Jewellers cheques issued from M/s. Vitrag Jewels (based on the statement of Shri Rajendra Jain) and used the said cash for purchasing diamonds from Unknown parties in the grey market, gets defeated on this count also, in as much as, the Ld. AO had accepted the fact that factum of purchases of diamonds indeed has been made by the assessee in the Asst. Year 2007-08 (i.e. the year under appeal) and whereas the payments were made to Vitrag Jewels only in next Asst. Year i.e. A.Y. 2008-09. While this is so, it is highly impossible for M/s. Vitrag Jewels to first hand over the cash even without receiving the cheques from the assessee. Hence no cash could be available with the assessee to make purchase of diamonds from unknown parties in the grey market in Asst. Year 2007-08. Hence the allegation of the Ld. AO only leads to impossible situation.
7.3 We find that the Hon’ble Jurisdictional High Court in the case of CIT vs Alpha Hydronics Pvt. Ltd. in of 2004 dated 10.11.2014 had held as under: We find that the Tribunal while allowing the appeal of the assessee and held as under: We have considered the rival submissions and gone through the facts of the case. We find that in the present case there is a binding contract between the parities by which the recipients of the commission had the right to enforce realization of commission stipulated between the parties. We also find from the communication between the parties that the payment was duly received by the parties and paid by the assessee by account payee cheques. The revenue has not alleged that the parties to the transactions ale related to each other or that the payments are not genuine or that the payments having been made by the assessee to the recipients have found their way back to the assessee some way or the other. Such being the case, we find that the authorities below were not Justified in rejecting the claim of the assessee for payment of commission. Since all the ingredients necessary for genuine business transaction exist in this case we do not find any merit in the addition made by the AO and in the action of the Ld. CIT(A) in confirming the same. In reversing their orders, and respectfully following the decision of the Hon'ble Calcutta High Court in the case of Masther & Plant (India) Ltd., (supra) and the case of the Tribunal, Mumbai Bench (Third Member) discussed herein above, we allow the appeal of the assessee''
Heard Mr. Das, learned advocate appearing for the appellant revenue and Mr. J.P, Khaitan, learned senior advocate appearing for the respondent
Assessment Year: 2007-08 Hiralal Motilal Jewellers assessee. Before us the revenue could not demonstrate either the money was not paid or the money was paid and routed back to the assessee. In the circumstances interference with the order of the Tribunal is not warranted. No. question arise for adjudication. The application and the appeal are dismissed 7.4. We also find that similar issue had been addressed by this tribunal in respect of purchases made from M/s Vitrag Jewels in connection with the statement of Shri Rajendra Jain in the case of Manoj Begani vs ACIT in for Asst Year 2008-09 ; ITA Nos. 933 to 935/Kol/2017 for Asst Years 2010-11 to 2012-13 and ITA No. 936/Kol/2017 for Asst. Year 2014-15 vide consolidated order dated 15.12.2017, wherein this tribunal had elaborately discussed the modus operandi of all the transactions from various angles and decided the issue in favour of the assessee. The findings given thereunder are not reiterated herein for the sake of brevity. 7.5 In view of the aforesaid findings in the facts and circumstances of the case, we hold that there is no case made out by the revenue for making an addition towards purchases of Rs. 15,57,470/- and we hereby direct the Ld. A.O. to delete the same. Accordingly, the ground 2 and 3 raised by the assessee are allowed.”
As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of M/s. M.B. Jewellers and Sons vs DCIT (supra) decided by the Division Bench of this Tribunal, I respectfully follow the same and delete the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of the alleged bogus purchases. Ground no 3 and 4 of the assessee’s appeal are accordingly allowed.
As a result of the decision rendered above deleting the addition made on account of the alleged bogus purchases, the issue raised by the assessee in ground no 1 and 2 challenging the validity of the Assessment Year: 2007-08 Hiralal Motilal Jewellers assessment has become academic or infructuous. I, therefore, do not consider it necessary to adjudicate upon the same.
In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 24th May, 2018.