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Income Tax Appellate Tribunal, ‘C’ BENCH, MUMBAI
Before: SHRI R.C SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present set of cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-10, Mumbai, for A.Y. 2012-13, which in itself arises from the assessment order passed by the A.O under Sec. 143(3), dated. 23.02.2015. That as common issues are involved, therefore, the said cross appeals are taken up together and disposed of by way of a consolidate order. The assessee had assailed the order of the CIT(A) by raising before us the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in confirming addition of Rs. 14,99,968/- being 6% purchases of 2,49,99,469/- made from M/s Olive Overseas Pvt. Ltd.
2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) erred in confirming order made under section 143(3) of the Act by the learned Assessing Officer which is illegal, bad-in-law, ultra vires, without allowing reasonable opportunity of the hearing , without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant and without allowing opportunity to cross examine and therefore, same is liable to be annulled.
3. The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act.
4. The appellant crave leaves to add, alter and/or vary any of the grounds of appeal before or at any time of hearing.” The revenue on the other hand had challenged the order of the CIT(A) on the following grounds:
“1(a). On the facts and circumstances of the case, the ld. CIT(A) erre in directing that 6% of the bogus purchases be disallowed as the profits 3 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. suppressed instead of disallowing bogus purchase u/s 69C of he Income tax Act, 1961. 1(b). On the facts and circumstances of the case, the ld. CIT(A) failed to appreciate that the findings of the search action of the Investigation wing of the department revealed that Bhanwarlal Jain group was engaged in the business of providing accommodation entries of unsecured loans, sales & purchases, share application money to many parties and the assessee could not conclusively establish the genuineness of the purchases made from the Bhanwarlal Jain Group. 1(c). On the facts and circumstances of the case, the ld. CIT(A) ought to have confirmed the addition of Rs. 2,49,99,469/- made u/s 69C of the Income Tax Act, 1961 made from M/s Olive Overseas P. Ltd.
2. The appellant prays that the order of the Ld. CIT(A) be set aside and the order 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.
Briefly stated, the facts of the case are that the assessee company was engaged in the business of Trading in Diamond and Gold. The return of income was filed by the assessee for A.Y. 2012-13 on 30.09.2012, declaring total income of Rs.2,84,890/-. The case of the assessee was thereafter taken up for scrutiny assessment u/s 143(2). That information was received by the A.O from the office of the DIT(Inv)-II, Mumbai that the assessee was a beneficiary of bogus purchases of Rs. 2,49,99,469/- from M/s Olive Overseas Pvt. Ltd., a bogus concern of one Sh. Praveen Kumar Jain who was conclusively proved to be running a web of concerns engaged in the business of providing accommodation entries of various nature, viz. bogus unsecured loans, bogus share application and bogus sales (purchases for the beneficiaries) etc.
That in the backdrop of the aforesaid information, the A.O called upon the assessee to show cause as to why the purchases claimed to have been made from the aforesaid concern, viz. M/s Olive Overseas Pvt. Ltd. may not be considered as bogus since Mr. Praveen Kumar 4 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. Jain and Mr. Nilesh Parmar in their respective statements recorded under Sec. 132(4)/131 of the ‘Act’, had confessed before the DDIT, Investigation, Mumbai, that the said concern was non-existent one and the directors who had signed the papers were dummies and had signed the papers for a nominal consideration. It was further stated by the aforesaid persons in their respective statements that they were only involved in issuing bogus bills and no physical transaction of goods had taken place. That it also came to the notice of the A.O that the investigation team of the department had also found the address of a secret premises at Thane which was operated by Sh. Uttam Hinger, the brother-in-law of Sh. Praveen Kumar Jain. The A.O further observed that the search team had also recovered certain unaccounted parallel books and a pen drive containing incriminating evidences of letters pertaining to the parties with whom Sh. Praveen Kumar Jain and others had secretly dealt with. The A.O in order to verify the genuineness and veracity of the purchases claimed by the assessee to have been made from the aforesaid concern, viz. M/s Olive Overseas Pvt. Ltd., therein issued a Notice u/s 133(6) to its director, which however could not be served. The A.O brought the said fact to the notice of the assessee and directed him to produce the director of the aforesaid concern, viz. M/s Olive Overseas Pvt. Ltd. The assessee however gave an evasive reply and did not produce the aforesaid person before the AO. That in the backdrop of the aforesaid factual position the A.O held a conviction that as the assessee had not made any genuine purchases from the aforesaid concern, therefore, the purchase consideration paid to the said hawala dealer must have been received back by the assessee in cash for financing subsequent purchases from undisclosed parties in cash. The A.O on the basis of his aforesaid conviction, being of the view that the source of expenditure paid to the undisclosed parties at the time of purchase 5 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. had remained unexplained, therefore, made an addition of the entire purchase consideration of Rs. 2,49,99,469/- under Sec. 69C in the hands of the assessee.
Aggrieved, the assessee assailed the order passed by the A.O before the CIT(A). The assessee in its attempt to fortify the genuineness and veracity of the purchase transactions which were claimed to have been made from M/s Olive Overseas Pvt. Ltd., therein raised the following contentions before the CIT(A): (i). The A.O had failed to give opportunity to cross examine the statements given by Sh. Praveen Kumar Jain and others; (ii). That Sh. Praveen Kumar Jain had retracted from his earlier statement; (iii). The assessee in order to fortify the genuineness and veracity of the purchase transactions under consideration, had furnished with the A.O the stock details, purchase bills etc; AND (iv). That all the payments to the supplier party were made through bank channels and the bank statements were filed with the A.O.
The CIT(A) after deliberating on the contentions of the assessee in the backdrop of the facts of the case, was however, not persuaded to accept the contention of the assessee that it had made genuine purchases of goods from the abovementioned hawala party. The CIT(A) observed that Sh. Praveen Kumar Jain had in his statement recorded during the course of the search and seizure action conducted on him and his group entities by the Investigation wing of the department, clearly admitted that they were not involved in any real trading of diamonds and were only providing bogus bills for a small consideration. The CIT(A) observed that the A.O in the backdrop of the 6 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. fact that the M/s Olive Overseas Pvt. Ltd, a group entity of Sh. Praveen Jain group was found to be a non-existent party and had not carried out any genuine sales, therefore, being of the view that the assessee had failed to prove the genuineness and veracity of the purchase transactions claimed to have been made from the said concern on the basis of irrefutable evidence, thus, brought to tax the entire bogus purchases standing in the name of the aforesaid concern, viz. M/s Olive Overseas Pvt. Ltd. However, the CIT(A) being of the view that the A.O had accepted the sales of the assessee and had failed to conclusively prove that the payments of the purchase consideration made by the assessee through banking channel to M/s Olive Overseas Pvt. Ltd. was received back by the assessee, therefore, concluded that the A.O could not have made an addition of the purchase consideration under Sec. 69C in the hands of the assessee. The CIT(A) being of the view that now when the A.O had accepted the sales of the assessee, therefore, as no sales would have been possible without purchase of goods, thus, it could safely be concluded that the assessee had purchased the goods, though not from the aforementioned hawala party, but from the open/grey market. The CIT(A) on the basis of his aforesaid conviction therein held that the addition in the hands of the assessee was liable to be restricted only to the extent of the profit that would have been involved in purchasing of the goods from the open/grey market. The CIT(A) took support of the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj). The CIT(A) observed that in the case of Simit P. Sheth (supra) the Hon’ble High Court had taken into consideration the saving of VAT which the assessee must had benefitted from by making the purchases from the open/grey market. The CIT(A) applying the methodology which was adopted by the High Court for estimating the profit element in respect of the bogus 7 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. purchases, therein observed that the VAT charges in diamond trade was 1% and the customs duty was 2%. Thus, the CIT(A) on the basis of his aforesaid observations held that the intention of the assessee to save from the transaction should be viewed only to the extent of savings of the above taxes by indulging in unethical practice of taking accommodation entries. The CIT(A) further referring to the CBDT Instruction No. 2/2008; dated. 22.02.2008, wherein it was observed by the Board that in case an assessee in the diamond trade had shown profits of 6% of its total turnover, then, the same was to be accepted. The CIT(A) taking support of the aforesaid CBDT instruction restricted the addition in the hands of the assessee to the extent of 6% of the purchases of Rs. 2,49,99,469/- which were claimed by the assessee to have been made from the aforementioned party, viz. M/s Olive Overseas Pvt. Ltd.
That both the assessee and the revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. We find that the assessee despite being intimated about the hearing of the appeal had neither appeared before us, nor any application seeking an adjournment had been filed. We thus, being left with no other alternative dispose of the present appeals after hearing the Departmental representative (for short ‘D.R’) and perusing the material available on record. The ld. D.R relied on the order of the A.O and submitted that keeping in view the very fact that Sh. Praveen Kumar Jain had clearly admitted that he and his group entities were only providing accommodation entries and had not carried out any genuine sales, and the assessee had failed to prove the genuineness and veracity of the purchases claimed to have been made from M/s Olive Overseas Pvt. Ltd., the addition of the entire purchase consideration was rightly made by the A.O u/s 69C. The ld. D.R to support his 8 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. contention drew our attention to Page 10 – Para 4.4 of the order passed by the A.O. The ld. D.R submitted that as the CIT(A) had passed the order without appreciating the facts of the case in the right perspective, therefore, his order may be set aside and that of the A.O be restored.
We have heard the ld. D.R, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the issue before us. We are unable to persuade ourselves to accept the claim of the assessee that the purchases made from M/s Olive Overseas Pvt. Ltd. were genuine. We find that Sh. Praveen Kumar Jain had in his statement recorded under oath during the course of search and seizure proceedings conducted on him, had clearly admitted that he and his group entities were only providing accommodation entries and not carrying out any genuine sales of diamonds. We are of the considered view that in the backdrop of the aforesaid statement of Sh. Praveen Kumar Jain, the A.O in order to verify the genuineness and veracity of purchases claimed by the assessee to have been made from M/s Olive Overseas Pvt. Ltd, a group entity of Sh. Praveen Kumar Jain, had issued Notice u/s 133(6) to the director of the said concern, which however could not be served. We find that the A.O brought the said fact to the notice of the assessee and directed him to produce the director of M/s Olive Overseas Pvt. Ltd, but however, the assessee came forth with evasive replies and did not produce the said person. Be that as it may, the fact remains that the assessee had failed to substantiate the genuineness and veracity of the purchases which were claimed to have been made from M/s Olive Overseas Pvt. Ltd. We are of the considered view that the A.O acting on the basis of the information as had emerged during the course of the search and seizure proceedings conducted on Sh.
9 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. Praveen Kumar Jain, and the fact that the assessee had independently failed to prove the authenticity of the purchase transactions under consideration, had therein rightly held the same to be a bogus transaction. We further find that the CIT(A) had rightly concluded that now when the A.O had accepted the sales of the assessee, therefore, it could safely be concluded that the assessee had made purchases of the goods under consideration, though not from the aforementioned hawala party, viz. M/s Olive Oversesas Pvt. Ltd., but from the Open/grey market. We are in agreement with the CIT(A) that no addition under Sec. 69C was called for in the hands of the assessee. We though are persuaded to accept the view of the CIT(A) that the addition in the hands of the assessee was liable to be restricted to the extent of the profit involved in making of the purchases by the assessee from the Open/grey market, but are unable to persuade ourselves to be in agreement with the basis that had been adopted by him for quantification of the profit element involved in making of the bogus purchases. We find that the CIT(A) had referred to the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Simit P. Sheth (2013) 356 ITR 451 (Guj), and had observed that the High Court after referring to the VAT benefit had worked out the profit element in respect of the bogus purchases at 12.5%. The CIT(A) thereafter took cognizance of the VAT of 1% and custom duty of 2% in the diamond business. The CIT(A) further took cognizance of the CBDT Instruction No. 2/2008; dated. 22.02.2008, wherein it was observed by the Board that in case an assessee in the diamond trade had shown profits of 6% of its total turnover, then the same was to accepted. We find that the CIT(A) by referring to and taking the aforesaid CBDT Instruction No. 2/2008 as a basis, had held that the addition in the hands of the assessee in respect of the bogus purchases was to be restricted to the extent of 6% of the purchases 10 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13. claimed by the assessee to have been made from the aforementioned party, viz. M/s Olive Overseas Pvt. Ltd. We do not find ourselves to be in agreement with the aforesaid view of the CIT(A). We are of the considered view that the additions in respect of the profit element involved in making of purchases of the goods by an assessee from the open/grey market has to be determined keeping in view the multiple factors, viz. VAT benefit, benefit of other taxes, discounts and other similar benefits. We are of the considered view that the CBDT instruction relied upon by the CIT(A) is in context of the profit element which an assessee would generate from sale of diamonds, which the Board after considering certain factors had reasonably accepted as 6% of the turnover. We are of the considered view that the issue before the CIT(A) was to fairly estimate the profit that the assessee would had made from making of purchases from the open/grey market, and on the said basis nullify inflation of the purchases made by the assessee in its books of account on the basis of the bogus purchase bills. We are of the view that now when the sales of the diamonds under consideration had already been routed through the books of accounts of the assessee, therefore, we have to limit ourselves to the quantification of the profit involved in making of the purchases by the assessee of the goods under consideration from the open/grey market. We have given a thoughtful consideration and are of the considered view that keeping in view the VAT benefit of (1%) and Custom duty (2%), the profit element from making of such purchases, in the backdrop of certain other benefits that the assessee would had derived from making of the same from the open/grey market, coupled with the fact that the unidentified seller operating in the open/grey market would not be transferring the entire set of benefits to the buyers, thus, can fairly be taken at 4%. We thus, in light of our aforesaid observations direct the A.O to restrict the addition in the hands of the 11 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – ITA No. 4453/Mum/2016 Assessment Year : 2012-13. assessee to 4% of the aggregate value of purchases of Rs. 2,49,99,469/- claimed by the assessee to have been made from the aforementioned party, viz. M/s Olive Overseas Pvt. Ltd. The addition sustained by the CIT(A) is modified in terms of our aforesaid observations.
The appeal of the assessee is partly allowed and the appeal of the revenue is dismissed in terms of our aforesaid observations.
Order pronounced in the open court on 27.10.2017 Sd/- Sd/- (R.C. SHARMA) (RAVISH SOOD) Accountant Member Judicial Member भुंफई Mumbai;ददनांक 27.10.2017 आदेश की प्रनिलऱपि अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. 4. आमकय आमुक्त / CIT 5. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai गार्ड पाईर / Guard file. 6. सत्मावऩत प्रतत //True Copy// आदेशधिुसधर/ BY ORDER, उि/सहधयक िंजीकधर (Dy./Asstt. Registrar) आयकर अिीऱीय अधर्करण, भुंफई / ITAT, Mumbai.
12 Renisha Impex P. Ltd. Vs. ITO – ITO Vs. Renisha Impex P. Ltd – Assessment Year : 2012-13.