KARP IMPEX LTD,MUMBAI vs. ASST CIT 5(2)(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 31.08.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The brief facts of the case are that the assessee is engaged in the business of trading, processing and exporting of cut & polished diamonds. During the year the Assessing Officer (hereinafter

The assessee was asked to produce the above parties for verification. There was no compliance of notice under section 133(6). Therefore, the AO has made the estimated addition @9% on above purchases, which came to Rs.5,72,88,541/-. .

Matter carried to the Ld. CIT(A) and the Ld. CIT(A) has partly allowed the claim by observing as under: “4.2.2 From the factual matrix, it is seen that even though the appellant has disclosed GP more than 6% for all the above three year under discussion, the Board's above instruction is not applicable straightaway. Since the issue of accommodation entries is a reality, to arrest such rampant malpractices, a restraint is always inevitable as we cannot encourage such malpractice of obtaining accommodation entries to avoid the impact of levies and defrauding revenue as the AO is in possession of certain valid information in the form oath statements even though he could not prove conclusively against the appellant. We can find such a restraint advised by the Hon'ble Gujarat High Court in the case of Simit P Seth (supra) without which avoiding payment of levies and defrauding revenue will continue unabated. However, in the present case the decision of Simit P Seth is not applicable in a cast-iron straight-jacket way except the theory of restraint laid down by them since the nature of business in the case before them was different from the present case. Keeping in view the above instruction of the Board on the one hand and the saving gained

No one has appeared on behalf of the assessee. Accordingly we have heard Ld. D.R. and Ld. D.R. relied upon the decision of the Tribunal, Ahmedabad Bench in the cases of Shwetambar Steels vs. ITO Ahmedabad and Ganesh Rice Mills vs. CIT (294 ITR 316). The facts in the present case show that assessee could not produce the parties from whom goods are stated to have been purchased. The suppliers were found to be engaged in providing bogus bill without actual dealing of goods. In this regard, the assessee has stated that they had submitted quantitative details of stock with respect of the sales with purchases from the parties during the assessment proceedings. The assessee has submitted the detail of corresponding sales in respect of the purchase from the said parties. As mentioned above the AO has never disputed or examined the aspect of sales receipts. Since the sales made by the assessee was not doubted or disputed by the AO and he has accepted the sales receipts of the assessee as it is, therefore, the AO cannot deny that purchases were not made by the assessee and the material was not used for its sales. What is under dispute is the purchases from the parties from whom bills have been taken and cheques have been issued to them. Purchases are not in dispute but the parties from whom purchase are shown to have been made are disputed and suspicious. The AO had 4 M/s. Karp Impex Ltd. made the addition as some of the suppliers were declared hawala dealers by the VAT Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done or findings recorded. There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the decision of Nikunj Eximp Enterprises vs. CIT 216 Taxman 171 (Bom). To this extent, we are of the view that if the assessee has fulfilled its onus of making the payment by cheque and has supplied the addresses of the sellers then it cannot be presumed that supplier were bogus simply because the sellers were not found at the given address. There is a considerable time gap between the period of purchase transaction and period of scrutiny proceedings. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business

In the result, assessee’s appeal is dismissed.