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PREMAL GUNVANT SHAH,MUMBAI vs ITO, WARD-19(2)(5), MUMBAI | BharatTax

PREMAL GUNVANT SHAH,MUMBAI vs. ITO, WARD-19(2)(5), MUMBAI

ITA 530/MUM/2024Status: DisposedITAT Mumbai13 August 2024AY 2011-12Bench: SHRI ANIKESH BANERJEE (Judicial Member), SHRI GAGAN GOYAL (Accountant Member)1 pages

AI SummaryPartly Allowed

Facts

The assessee's appeal is against the order of the NFAC which confirmed the addition of Rs. 66,30,039/- made by the AO as unexplained expenditure under section 69C of the Income Tax Act, alleging non-genuine purchases from M/s. Krishna Diam. The AO's action was based on a search and seizure operation on Mr. Gautam Jain, who controlled M/s. Krishna Diam. Investigations revealed that M/s. Krishna Diam was a paper company involved in providing bogus accommodation entries.

Held

The Tribunal noted that the key person, Gautam Jain, admitted that M/s. Krishna Diam was a paper company and that the purchases and sales were bogus accommodation entries. Following various judicial pronouncements and considering the assessee's own plea for a GP rate of 3%, the Tribunal directed the AO to apply a GP rate of 3% on the alleged bogus purchases and work out the income accordingly.

Key Issues

Whether the purchases from M/s. Krishna Diam were genuine or bogus accommodation entries, and if bogus, what is the appropriate method for quantifying the addition to income.

Sections Cited

143(3), 147, 250, 69C, 131(1A), 132(4)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI

Before: SHRI ANIKESH BANERJEE & SHRI GAGAN GOYALShri Premal Gunvant Shah

For Appellant: Shri Sameer Dalal, Ld. AR

For Respondent: Shri H. M. Bhatt, Ld. DR

Hearing: 11/06/2024Pronounced: 13/08/2024

PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 05.01.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2011-12. The assessee has raised the following grounds of appeal:-

1.

1. The Income tax Officer 19 (2)-5, Mumbai ("the A.O.") erred in framing the assessment under section 143 (3) read with section 147 of the Income tax Act, 1961 ("the Act"). 2 WITHOUT PREJUDICE TO THE ABOVE: 2.1 The National Faceless Appeal Centre, Delhi, ("the NFAC") erred in confirming the action of the A.O. whereby the A.O. made addition of Rs. 66,30,039/- under section 69 C of the Act as unexplained expenditure alleging the purchases made by the Appellant from M/s. Krishna Diam as non - genuine. 2.2 While doing so, the NFAC failed to appreciate that: (a) There was no material whatsoever with A.O to show that Appellant had actually incurred any expenditure on purchases outside his books of account; (b) The purchases were made in regular/normal course of his business; (c) Proper quantitative details of purchases were maintained by the Appellant; (d) Confirmation of M/s. Krishna Diam confirming the purchases made from them was also furnished by the Appellant to A.O.; (e) Copy of income tax return filed by M/s. Krishna Diam for the A.Y. 2011-10 was filed before the A.O. (f) The amounts have been paid to the purchasers through account payee cheques through proper banking channel. (g) The sales out of alleged non genuine purchases from M/s. Krishna Diam were accepted by the A.O. 2.3 It is submitted that in the facts and the circumstances of the case, and in law, no such addition under section 69 C of the Act was called for. 2.4 without prejudice to the above, and in alternative it is submitted that the addition of entire purchase of Rs. 66, 30,039/- was not called for. 3. the appellant craves leave to refer to and rely upon all or any of the above grounds of appeal and add to, delete, modifies and/or alters the grounds of appeal on or before the date of hearing.

5.14 Business Modus operandi of these concerns (i) Their concerns are engaged in merely paper transactions. (ii) In the name of their numerous concerns, they import rough and cut & polished diamonds for the other clients who do not want to show import in their own books. The physical delivery of the diamonds so imported is immediately handed over to these actual importers after clearance of the consignment by Customs, without recording sales in the books of account. (iii) Sales bill issued to diamond processing houses and traders against book stock by the benami Importer. (iv) These concerns issue sale bills/give accommodation entries for a commission to various parties who normally purchase diamonds in cash from undisclosed parties and need bills to show purchases against sales in their account. (v) Payments are made by cheque against bogus purchases. (vi) They also provide accommodation entries of unsecured loans against cash. 5.15 Findings of the search action on Gautam Jain & Others:  The Directors/proprietors of all these concerns admitted on oath that the concerns are nothing but paper companies with no genuine business.  It was established that the concerns import rough diamonds in their hands at the behest of a third person/interested parties.  The diamonds once cleared from Customs are immediately taken away by the interested parties (third party).  These group concerns are thus left with no physical stock; however, the stock is reflected in their books against which bogus bills of sale are issued to interest parties.  Accommodation entries (unsecured loans) are also given to other interested parties against cash from time to time. 5.16 As a result of the search and seizure action, it is established that the covered concerns run and operated by Shri Gautam B Jain, are having the above mentioned modus operandi. These concerns are involved in providing accommodation purchase entries and accommodation unsecured loan entries. The stock in the books of the concerns is either shown to be imported or procured locally in case of imports the stock upon clearance at Customs is taken away by the real importer. Thus, in the books of the non-genuine concerns, the stock remains however, physically there is no stock. Thereafter, non-genuine sales are shown by these concerns to interest parties, who want to book bogus purchases from time to time. Receipts are by the mode of cheque or RTGS. Upon receipt of which the concerns which had actually imported the stock, makes payment in cash to the other beneficiary concern thus completing the cycle. The non-genuine diamond concerns can thus make the payment to their suppliers of diamond from whom they avail credit period as well.

 [2019] 103 taxmann.com 459 (Bombay) Principal Commissioner of Income-tax-17 v. Mohommad Haji Adam & Co. Section 69C of the Income-tax Act, 1961 - Unexplained expenditure (Bogus purchases) - Assessee was a trader of fabrics - In course of assessment, Assessing Officer noted that certain purchases made by assessee were bogus - He thus added said amount to assessee's taxable income - Tribunal noted that there was no discrepancy between purchases shown by assessee and sales declared - Accordingly, Tribunal restricted addition limited to extent of bringing gross profit rate on purchases at same rate as applied in other genuine purchases – Whether, on facts, no substantial question of law arose from Tribunal's order - Held, yes [Paras 8 and 9]  [2022] 141 taxmann.com 245 (Bombay) Principal Commissioner of Income-tax v. Batliboi Environmental Engineering Ltd. I. Section 69C of the Income-tax Act, 1961 - Unexplained expenditure (Bogus purchases) - Assessment year 2011-12 - Assessing Officer treated purchases made by assessee as bogus purchases and disallowed in totality - Commissioner (Appeals) directed Assessing Officer to disallow 12.5 per cent of bogus purchases and to add 12.5 per cent of amount of purchases to income of assessee - Tribunal upheld view of Commissioner (Appeals) - Revenue contended before High Court that bogus purchases ought to have been disallowed in totality - It was noted that if factum of sales had been accepted by department then even if it was established that there were bogus purchases, it was not necessary that entire amount of purchases should be added to income of assessee as there could not be a sale without purchase - In instant case sales effected by assessee had been accepted by department - Whether Tribunal was right in upholding view of Commissioner (Appeals) - Held, yes [Para 4] [In favour of assessee] 5. Moreover the assessee himself pleaded before the Ld. CIT (A) that considering the industry and facts of the case, a G.P. rate of 3% should have been applied. To support his contentions, assessee furnished an assessment order of his known /family member M/s. V. Gunvant & Co. for same assessment year u/s. 143(3) r.w.s. 147 of the Act before the AO and the Ld. CIT (A). In view of this fact and respectfully following the decisions relied upon by us (supra), we are of the considered view that the matter of the assessee should also get the same treatment. Hence we direct the AO to apply G.P. @ 3% on alleged bogus purchase and work out the income of the assessee accordingly.