POPATLAL N. SHAH,MUMBAI vs. ACIT - 19(2), MUMBAI

Sr. No. Name of the hawala party Bill amount 1. MOHIT ENTERPRISES 37663845 2. MAYUR EXPORTS 48731825 3. PRIME STAR 74673899 Total 161069569 The A.O acting on the aforesaid information called upon the assessee to substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforesaid parties. The assessee in its reply submitted before the A.O that it had made genuine purchases from the aforesaid concerns, which had duly been recorded in the books of account. The assessee further in order to fortify the veracity of the purchase transactions, stressed on the fact that the payment of the purchase consideration was made to the aforementioned parties through cheques. However, the A.O did not find favour with the aforesaid submissions of the assessee and observed that barring the entries in the stock register, payment through cheques and custom appraisal report in respect of export P a g e | 4 & 6726/Mum/2016 AY: 2012-13 Popatlal N. Shah Vs. ACIT sales, no other document such as delivery challans etc, which could irrefutably prove the genuineness of the purchase transactions was placed on record by the assessee during the course of the assessment proceedings. The A.O on the basis of his aforesaid observations concluded that the assessee had made purchases of the goods under consideration, though not from the aforementioned hawala parties, but from the open/grey market, either directly or through brokers. The A.O on the basis of his aforesaid observations, holding a conviction that the assessee must had benefited by purchasing the goods at a lower price from the open/grey market, therefore, rejected the purchases booked by the assessee on the basis of the invoices issued by the aforementioned hawala parties. The A.O after deliberating on the facts of the case concluded that no genuine purchases were made by the assessee from the aforementioned parties, and observed as under:- a. That the physical delivery of the goods were obtained from the party based in grey market and to give it colour of being a genuine purchase, the bogus bill/accommodation bill was obtained from the supplier. b. Though the purchases alleged as genuine are shown to have been made by making payment thereof by an account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers. c. The assessee could not produce any delivery challan to prove that the delivery of these goods have been actually received by them from these alleged suppliers. d. The Director/Partner/proprietor of above party has no knowledge of diamond business. e. The Director/ Partner/ proprietor of above party had only receipt of salary, mostly in cash. At times the salary is disbursed to them on need basis, as and when required. It has been observed that the profit of the concerns in which such employees are shown as directors, partners or proprietors are maintained more or less equivalent to their annual salary. In the regular books of the said concern, the profit is shown to be appropriated by the concerned P a g e | 5 & 6726/Mum/2016 AY: 2012-13 Popatlal N. Shah Vs. ACIT director/partner/proprietor; however the same is actually appropriated by Bhanwarlal Jain & Family. These employees merely get salary for lending their names to various concerns and for doing miscellaneous office work, looking after banking transactions and data entry of the accounts etc. In some cases, wives of these employees are shown to be receiving salary from certain concerns without rendering any services. f. The concerns in which these employees are shown as directors/partners/proprietors are operating from the premises which are in the name of Bhanwarlal Jain & family. g. The concern is shown to be engaged in import of diamonds. However when the name sake directors/partners/proprietors were specifically asked to explain how they contacted the parties from whom the imports have been made in the respective concerns, he was unable to comment on the same. He admitted of not having any personal contact with any of the importers either through phone or email. He also admitted of not having visited any foreign country for the purpose of business. h. The assessee was also asked to produce the above suppliers for verification but he failed to produce them before the undersigned. When expenditure (Purchase) is claimed to have been incurred, the initial burden will be on the assessee to prove the genuineness of the purchase. In case the parties have shifted, the assessee is expected to know their current address as the onus is on the assessee (legal heir) to prove that the purchases were genuine. Reliance is placed on judgment of the Gujarat High Court reported in CIT Vs Chandra Vilas Hotel (1987) 164 ITR 102 (Guj.). This onus has not been discharged by the assessee.

P a g e | 11 & 6726/Mum/2016 AY: 2012-13 Popatlal N. Shah Vs. ACIT Mayur Exports; and (iii) Prime Star. We find that it remains as a matter of fact borne from record that the assessee had failed to substantiate the genuineness and veracity of the purchases which were claimed to have been made from the aforementioned bogus suppliers. We further find that the A.O while concluding that the assessee had not made any genuine purchases from the aforementioned parties, had arrived at such a conclusion after taking cognizance of certain material facts, viz. (i) the persons in charge of the aforesaid bogus concerns had in their statements recorded on oath by the investigation wing during the course of the Search and survey action, had admitted that they were only dummies and the concerns were as a matter of fact managed and controlled by Shri. Bhanwarlal Jain and his family members; (ii) the said concerns were only providing accommodation bills and not carrying on any genuine business transactions; and (ii) assessee had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the aforesaid parties on the basis of irrefutable documentary evidences. We have given a thoughtful consideration to the facts before us and are of the considered view that the A.O had rightly concluded that the purchases claimed by the assessee to have been made from the aforesaid dummy concerns could safely be characterized as bogus. We are of the considered view that the CIT(A) had rightly appreciated that now when the assessee had absolutely failed to lead any primary evidence to substantiate the genuineness and veracity of the purchases transactions under consideration, therefore, there remained no occasion for the A.O to have held the purchase transactions under consideration as genuine. We are further persuaded to be in agreement with the CIT(A) that now when the sales of the assessee had not been doubted and dislodged by the A.O, therefore, it could safely be gathered that the assessee had purchased P a g e | 12 & 6726/Mum/2016 AY: 2012-13 Popatlal N. Shah Vs. ACIT the goods under consideration, though not from the aforementioned dummy concerns from whom bogus bills have been taken, but from certain unidentified parties operating in the open/grey market. We are further of the view that the CIT(A) had rightly appreciated that the addition in the hands of the assessee was liable to be restricted only to the extent of the profit element which was embedded in making of purchases from the open/grey market. We find that the CIT(A) though was not oblivious of the fact that in respect of bogus purchases made in a normal business, the courts had consistently estimated the profit margin involved in making of purchases from the open/grey market @ 12.5% of the value of the bogus purchases, but then, not loosing sight of the fact that unlike those cases, in the trade line of diamond business the profit margin did not exceed 3%, had thus in all fairness restricted the addition in the hands of the assessee to 3% of the aggregate value of the bogus purchases which were claimed to have been made from the aforesaid parties. We have given a thoughtful consideration to the facts of the case and are persuaded to be in agreement with the view taken by the CIT(A). We thus being of the considered view that the CIT(A) had fairly concluded that the addition in respect of the purchases which were claimed by the assessee to have been made from the aforementioned bogus concerns, viz. (i) Mohit Enterprise; (ii) Mayur Exports; and (iii) Prime Star, were liable to be restricted to 3% of the aggregate value of the purchases, therefore, find no reason to dislodge his well reasoned order. We thus, in the backdrop of our aforesaid observations, finding ourselves as being in agreement with the view taken by the CIT(A), dismiss the appeal of the assessee.

P a g e | 13 & 6726/Mum/2016 AY: 2012-13 Popatlal N. Shah Vs. ACIT ITA No.6726/Mum/2016 A.Y. 2012-13 8. We shall now take up the appeal of the revenue, wherein the latter assailing the order of the CIT(A), had therein carried the matter in appeal before us by raising the following grounds of appeal:- “1. On the facts and circumstances of the case and in law, whether, the ld. CIT(A) was correct in reducing the addition made by the A.O @ 8% on Rs.16,10,69,569/- and sustaining only an addition @ 3% profit rate on total purchases of Rs.16,10,69,569/- made from four parties.

2. The appellant prays that the order of the learned CIT(A) on the above grounds be set aside and that of the A.O be restored.

3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

9. We find that the controversy involved in the cross appeals filed by the assessee and the revenue boils down to the issue as regards the quantification of the profit element embedded in the purchases made by the assessee from the open/grey market, as in comparison to those made from regular dealers. We find that the revenue being aggrieved with the scaling down of the said addition which was made by the A.O @ 8% of the aggregate value of the purchases claimed by the assessee to have been made from the aforesaid dummy concerns to 3% by the CIT(A), had therein carried the matter in appeal before us. That as the issue involved herein had already been deliberated at length by us while disposing of the appeal of the assessee in for the year under consideration, viz. AY: 2012-13, therefore, in terms of our aforesaid observations wherein we had upheld the order of the CIT(A) and sustained the addition @ 3% of the aggregate value of the bogus purchases made by the assessee, the appeal of the revenue is dismissed in terms of our said observations.