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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM] I.T.A No. 1/Kol/2017 Assessment Year : 2007-08 M/s M.B. Jewellers & Sons -vs- DCIT, Circle-44, Kolkata [PAN: AAEFM 7973 J] (Appellant) (Respondent)
For the Appellant : Shri S.M. Surana, Adv. Shri Sunil Surana, FCA For the Respondent : Shri S. Dasgupta, Addl. CIT(DR)
Date of Hearing : 07.03.2018 Date of Pronouncement : 28.03.2018
ORDER Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-13, Kolkata [in short the ld CIT(A)] in Appeal No.81/CIT(A)- 13/Kol/Cir-44/2015-16 dated 09.09.2016 against the order passed by the DCIT, Circle- 44, Kolkata [ in short the ld AO] under section 147/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 20.03.2015 for the Assessment Year 2007-08.
The only issue to be decided on merits of the case is as to whether the ld CITA was justified in confirming the addition of Rs 15,57,470/- as bogus purchases and treating the same as income in the facts and circumstances of the case.
2 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 3. The brief facts of this issue is that the assessee is a partnership firm carrying on jewellery business. The return of income for the Asst Year 2007-08 was filed by the assessee firm on 14.11.2007 declaring total income of Rs 1,03,45,446/- which was subsequently revised on 12.6.2008 disclosing total income of Rs 1,05,40,396/-. The assessment was completed u/s 143(1) of the Act. Later an information was received to the office of ACIT, Circle 39, Kolkata from the office of DGIT (Inv.), Mumbai vide his office letter dated 14.3.2014, in which it was stated that the assessee has alleged bogus purchase of jewellery of Rs 15,57,470/- from M/s Vitraj Jewels and of Rs 5,90,885/- from M/s AVI Exports. After recording reasons for reopening of the case for reassessment, notice u/s 148 of the Act was issued on 30.3.2014 and served on the assessee on 31.3.2014. In response to this notice, the assessee vide its letter dated 28.4.2014 stated that the return of income filed on 12.6.2008 for the Asst Year 2007- 08 may be treated as as the return in compliance to the notice u/s 148 of the Act and requested this office to provide them the reasons for reassessing the income which were duly provided to the assessee. The assessee raised the objections on the reasons for issue of notice u/s 148 of the Act which was duly disposed off by a speaking order dated 6.2.2015. During the course of assessment proceedings, a show cause letter was issued to the assessee on 26.2.2015 expalining them as to why this alleged purchase of jewellery worth Rs 15,57,470/- should not be treated as purchase from unexplained cash and should not be added to its income as income from undisclosed sources. The show cause letter dated 26.2.2015 is reproduced hereunder:- “Regarding so-called purchase from M/s Vitrag Jewels, you have filed your reply on various dates but it is noted that you have shown purchases of diamond from this concern from 03.06.2006 to 27.07.2006 and made payment on 22.02.2008 amounting to Rs. 10 lacs. and on 27.03.2008 amounting to Rs. 5,57,470/- i.e. after about 20 months. Under these circumstances and gist of statements of Shri Rajendra Jain & Shri Dharmichand Jain recorded at the time of search & seizure operation u/s 132 and communicated to you vide letter No. ACIT/Cir-37/Kol/MB jewellers/2014-15/410 dated 06.02.2015 in which it has been categorically mentioned that M/s Vitrag Jewels was a paper concern engaging in the activity of providing paper transactions for the purpose of purchase bills, accommodation entries etc. Under these circumstances, please explain as to why it should not be treated that you have taken the 2
3 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 accommodation entry from M/s Vitrag Jewels but in actual purchased the diamond for Rs. 15,57,470/- from some unknown parties whom payments have been made from unexplained cash. Accordingly, please explain as to why this unexplained cash of Rs. 15,57,470/- should not be added to your income as income from undisclosed sources.”
The assessee produced the books of accounts, bills, vouchers, stock registers, bank statements together with various details and explanations that were called for before the ld AO. In response to the show cause notice, the assessee stated that it had purchased trading goods from the above party for use in its business against proper bills nad challans for valued consideration and such goods were further sold by it at profit in the normal course of the business. It was further stated that the payments to Vitraj Jewels were settled by the assessee through account payee cheques.
The ld AO observed as under:- “3.2. The contention of the assessee has been examined along with the material put on record. It is worth to mention here that a search & seizure action u/s 132 of the I.T. Act, 1961 was conducted on a group of concerns including M/s Vitrag Jewels controlled and managed by Shri Rajendra S Jain, Shri Dharmichand Jain & Shri Sanjay Choudhury on 03.10.2013. Accordingly, the statements of these persons were recorded on oath during the course of search u/s 132 of the I.T. Act. In the statements Shri Rajendra Jain & Shri Surendra Jain, the key persons of this group, admitted that all the concerns controlled and managed by them were not doing any real trading in diamonds but indulged in paper transaction only. Shri Rajendra Jain in his statement had categorically mentioned that “concerns purchasing diamonds in cash from grey market and taking bogus purchase bills to regularize the purchase in books, are the concerns that require bogus purchase bill for diamonds, however, their concerns have bogus stock of diamond in their books of accounts which are shown to be purchased from foreign concerns. The diamonds shown to be purchased/imported from foreign concerns are shown to be sold to these concerns who take purchase bills from their concerns without actual delivery of diamonds. The payments made through cheques or RTGS by these concerns get utilized for the payments in foreign currency to the foreign concerns. Against the payment made by these concerns through cheques or RTGS, the cash component is settled by the key persons, who import diamond without bill, directly or indirectly by taking services of Angadia. It was also admitted by Shri Rajendra Jain in his statement that they were engaged in the business of bill shopping through all the concerns due to which they didn’t have any physical stock of diamond at any place at any point of time.
4 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 3.3.From the statements of the key persons of this group, which were recorded on oath at the time of Search & Seizure operation u/s 132 of the I.T. Act, it is crystal clear that this group was not carrying out any actual business of any kind, but merely running the paper concerns for providing accommodation entries to the interested parties. The assessee has also got accommodation entry from M/s Vitrag Jewels which was a paper concern of this group engaged in the activity of providing paper transactions for the purpose of purchase bills, accommodation entries etc. Hence, there was no purchase of diamond from M/s Vitrag Jewels rather assessee had purchased the diamond worth Rs. 15,57,470/- from some unknown parties whom payments have been made from unexplained cash. So far as payments through cheques to M/s Vitrag Jewels by the assessee are concerned, the same have been settled in cash as per the statements of these persons. Therefore, this amount of Rs. 15,57,470/-- is treated as income from undisclosed sources of the assessee for the year under consideration which has been used for purchase of diamonds in cash from some unknown parties. Therefore, addition of Rs. 15,57,470/-is made to the income of the assessee. I am satisfied that the assessee has filed inaccurate particulars of his income and has concealed the income to the extent of Rs. 15,57,470/-, penalty proceedings u/s 271(1)(c ) of the Income Tax Act, 1961 are initiated separately.” [Addition : Rs. 15,57,470/-]
The ld CITA upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. For that the order of the Ld. CIT(A) in confirming the proceedings initiated u/s 147 which was bad in law.
For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of Rs. 15,57,470/- as bogus purchase and treating the purchases of goods as income of the appellant whereas the appellant purchased trading goods for consideration, such goods were subsequently sold for profits and revenue received upon such sales was duly considered as income of the appellant and therefore the Ld. CIT(A) should have deleted the addition of Rs. 15,57,470/-.
That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact of the case and thereby confirming the addition made by the IT.
For that the interest charged u/s 234B(1) is not accordance with law.
For that on the facts and in the circumstances of the case the order of the Ld. CIT(A) be modified and the assessee be given the relief prayed for.
5 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 6. For that the assessee craves leave to add, alter or amend any ground before or at the time of hearing.
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 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 Vitraj 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 5
6 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 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 (Inv) 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 (Inv) . 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 Vitraj 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 account payee cheques. We find that the tax auditor had reported the complete quantitative details of opening stock, purchases, stocks transferred, 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 6
7 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 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 1.4.2006 to 31.3.2007 indicating the quantity and value in opening balance, purhcases, 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 Vitraj 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 31.3.2007 and for the period 1.4.2007 to 31.3.2008 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 22.2.2008 (Rs 10,00,000/-) and on 27.3.2008 (Rs 5,57,470/-). Hence the primary allegation of the ld AO that the
8 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 assessee had received the cash back in lieu of account payee 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 AY 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 ITA No. 549 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 parites 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 are 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 assessee. Before us the 8
9 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 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 ITA No. 932/Kol/2017 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 AO to delete the same. Accordingly, the Grounds 2& 3 raised by the assessee are allowed.
The Ground No. 4 raised by the assessee is with regard to chargeability of interest u/s 234B of the Act which is consequential in nature and does not require any adjudication.
The Ground Nos. 5 & 6 raised by the assessee are general in nature and does not require any specific adjudication.
The Ground No. 1 raised by the assessee is on the validity of reopening of assessment.
10 ITA No.1/Kol/2017 M/s M.B. Jewellers & Sons A.Yr. 2007-08 11. Since the relief is granted on merits of the case, we do not deem it fit to get into the issue of validity of reopening of assessment and we refrain to give our opinion thereon.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 28.03.2018
Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 28.03.2018
SB, Sr. PS
Copy of the order forwarded to: 1. M/s M.B. Jewellers & Sons, P-10, Devendra Dutta Lane, Kolkata-700007 2. DCIT, Circle-44, Kolkata, 3, Government Place, Kolkata-700001 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.