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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI D.T. GARASIA
Per D.T. Garasia, Judicial Member:
The above titled appeals have been preferred by the assessee against the order dated 12.05.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2009-10, 2012-13 & 2013-14. Since the facts and issues involved in all the three appeals are identical in nature, hence the same are taken together for disposal by this common order.
The short facts of the case are as under: The appellant is a company engaged in the business of trading in cut and polished diamonds. It filed its return of income for A.Ys.2009-10, 2012-13 & 2013-14 declaring income of Rs.18,990/- for A.Y 2009-10, Rs.8,270/- for A.Y.2012-13 and loss of (-)
2 5100 & 5101/M/2017 M/s. SRK Gems and Gifts Pvt. Ltd. Rs.18,015/- for AY 2013-14. Subsequently, based on the information from DIT(lnv) that the assessee was benefited from accommodation entries from -the Bhanwarlal Jain Group, the cases were reopened by issue of notices u/s 148 on 27/03/2015, 24/03/2015 and 24/03/2015 for A.Yrs. 2009-10, 2012-13 and 2013-14 respectively. The assessments were completed u/s 143(3) r.w.s 147 on 15/02/2016 for all the above three years determining the total income at Rs.69,070/-, Rs.4,80,160/- and Rs 1,91,600/- respectively by making the additions.
Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal of the assessee by observing as under: “4. The solitary issue raised is with regard to addition of 8% GP of the alleged non-genuine transaction and addition of 2% brokerage on the purchase value. The details of the transaction are as under:-
A.Y. Name of the party Amount 2009-10 Mayur Exports 5,00,750/- 2012-13 Kangan Jewels 47,18,886/- Pvt.Ltd. 201 3-14 Mariiprabhalmpex 20,96,150/- Pvt,Ltd. A search and seizure action has taken place in the case of Shri Rajendra Jian, Shri Sanjay Choudhary and Shri Dhamichand Jain by the DGIT(lnv.), Mumbai. It was found that the appellant company had taken accommodation entries from the above group who are the hawala operators, issuing bogus bills and giving accommodation entries without giving actual delivery of goods. During the course of post search inquiries Shri Rajendra Jain admitted the fact that they are engaged in paper transactions only without sale of any physical stock of the goods (diamonds). Considering the above facts, the additional income is calculated at 8% being the possible profit out of the purchases made through non-genuine parties and added to the total income of the assessee.
3 5100 & 5101/M/2017 M/s. SRK Gems and Gifts Pvt. Ltd. 4.0.1 The assessee company has also admitted that the transaction of taking accommodation entries is through the payment of brokerage. But it has failed to produce the details of such brokerage. In the circumstances, 2% of such bogus purchases was added to the total income of the assessee as unexplained expenditure for all the above 3 years.”
I have heard the rival contentions of both the parties. It is not that Assessing Officer (hereinafter referred to as the AO) has disallowed the purchases on the ground that they were not verified but holding them as non genuine parties. I find that the Ld. CIT(A) has dismissed the appeal on the ground that assessee in this case could not produce so called supplier. I find that in this case assessee failed to produce any independent evidence to prove the purchases including production of sellers for examination of AO. The assessee admitted before the AO that the present whereabouts of the so-called suppliers is not known to them. Even though the AO could not prove substantively that the amounts given to the sellers in cheque form have come back to the assessee, the activities of accommodation entries in the trading community is not unheard of. Further, the investigation carried out by the Department cannot be lost sight of. When the names of the parties are appearing in the books of the assessee company, it is to be taken that a live link has been established between the bogus traders and the assessee company. Further, one should not be carried away by the myth that any amount routing through bank channels would establish the genuineness of transaction as held by the Hon’ble Bombay High Court in the case of Naresh K. Pahuja (2015) 54 taxmann.com 258. In such similar cases, I find that assessee has avoided the payment of tax and profit
4 5100 & 5101/M/2017 M/s. SRK Gems and Gifts Pvt. Ltd. margin in the industry. Keeping in view of the nature and business and the facts and circumstances of the case, I find that similar issue had come up before Mumbai Tribunal in ITA No.6178/M/2007 wherein the Tribunal has held as under: “5. We have considered the issue and examined the facts on record. It is noticed that the Assessing Officer disallowed the entire purchases from 35 parties for the reason that they are not verifiable holding them as non-genuine parties in this Assessment Year, whereas purchases from similar parties/same parties in earlier years and later year were not disallowed but, GP was assessed on the entire turnover at 4.5%. The CIT (A) while deleting the entire purchases disallowed this year. In other years GP was restricted to 3% of the tainted purchases. This issue was considered by the ITAT in a batch of appeals in ITA Nos.3024 to 3028/Mum/2008 vide Para 7 as under: "7. We have carefully perused and considered the facts of the case, rival submissions and relevant record. The Assessing Officer applied the G.P.@ 4.5% on the entire sales turnover including the alleged bogus sales and consequently, made addition to the total income of the as, over and above the net profit shown, in the P&L account, for the respective Assessment Years. Such addition made by the Assessing Officer on the basis of GP rate applied to the entire sales is not legally and factually tenable. The element of inflation in purchases can be possible only in respect of such bogus purchases. The estimation and application of uniform G.P @ 4.5% on the entire sales of the assessee is not reasonable and not in consonance with the facts of the present case, as the entire purchases and entire sales were not non- genuine. The said G.P rate may not be applicable, in respect of export business. The Assessing Officer has treated the purchases from the alleged 16 parties as bogus purchases. No adverse finding has been given by the Assessing Officer in respect of remaining purchases. Therefore, uniform estimation and application of GP @ 4.5% is not sustainable. In view of this, we are of the considered opinion that the GP rate applied by the learned CIT (A) at 3% in respect of tainted purchases is fair and reasonable. Therefore, the findings of the learned CIT (A) in respect of all the assessment involved in the present appeals are upheld and the appeals of the revenue for all the Assessment Years are dismissed."
Respectfully following the same, I find that in this year the 3% of tainted purchases is accepted by the AO. I, therefore, modify the order of the Ld. CIT(A) and restrict the addition up to 3% of tainted purchases.
In the result, all the threes appeals of the assessee are partly allowed.
Order pronounced in the open court on 30.11.2017.