DCIT CEN CIR 3(3) CEN RG 3, MUMBAI vs. SUNJYOT GEMS, MUMBAI

The captioned appeal by revenue for Assessment Year [AY] 2007- 08 assails the order of the Ld. Commissioner of Income-Tax (Appeals)- 51 [CIT(A)], Mumbai dated 15/02/2017 qua relief provided to the assessee on account of certain bogus purchases. None has appeared Sunjyot Gems Assessment Year 2007-08 for assessee despite notice. Left with no option, we dispose-off the same on the basis of material available on record and after hearing Ld. Departmental Representative [DR]. 2.1 Facts leading to the same are that the assessee being resident firm engaged in the business of diamonds, was subjected to an assessment u/s 143(3) read with Section 147 for impugned AY on 27/03/2015 at Rs.81,75,030/- after addition of certain bogus purchases for Rs.76,00,607/-. The original return was e-filed on 29/10/2007 at Rs.5,74,418/- which was assessed at same figures u/s 143(3) on 19/11/2009. The solitary addition of bogus purchases of Rs.76,00,607/- is the subject matter of this appeal. Notice u/s 148 dated 28/03/2014 was issued to the assessee which was followed by statutory notices u/s 143(2) & 142(1). 2.2 Pursuant to search & seizure action on Bhanwarlal Jain Group by DGIT (Inv.), it was noted that the assessee made impugned purchases from two entities of the group as per the following details:- No. Name Amount (Rs.) 1. Little Diam 45,30,643/- 2. Kothari & Co. 30,69,964/- Total 76,00,607/- The search / survey actions on the said group revealed that the said group consisting of numerous business entities was engaged in providing accommodation purchases bills & accommodation loans & advances. Consequently, the assessee was called upon to substantiate the purchase transactions. The assessee defended the purchases made ITA No.3239/M/2017 Sunjyot Gems Assessment Year 2007-08 by him. However, not convinced, Ld. AO disallowed the same and added the same to the income of the assessee.

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 15/02/2017 where the assessee contended that the additions have been made without making independent inquiries and no opportunity of cross examination was provided to the assessee and therefore, additions were not justified particularly when the assessee was in possession of primary purchase documents and corresponding sales details were provided by the assessee. The Ld. CIT(A) after considering assessee’s submission, remand report, judicial pronouncements on the subject noted that no independent inquiries were made by Ld. AO whereas the assessee supplied requisite documents and the payments were through banking channels. Finally, placing reliance on CBDT circular No. 2/98 dated 22/02/1998 and decision of Hon’ble Gujarat High Court in Simit P.Sheth 356 ITR 451, Ld. CIT(A) estimated the additions @6%. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR] placed reliance on the stand of Ld. AO and contended that the assessee could not produce any of the party for confirmation of transactions. Further, the search / survey action on the concerned group clearly revealed that the transactions were merely accommodation entries and therefore, Ld. CIT(A) erred in granting substantial relief to the assessee.

Heard and perused relevant material on record. We are of the considered opinion that there could be no sale without purchase of Sunjyot Gems Assessment Year 2007-08 material keeping in view the nature of assessee’s business. The turnover achieved by the assessee has not been disputed by the revenue and the payments were through banking channels. The assessee produced details of purchase and corresponding sales before Ld. AO. At the same time, the assessee could not produce any of the supplier before lower authorities and the search / survey action on the group casted a serious doubt on assessee’s claim. Therefore, in such a situation, the addition, which could be made, was to account for profit element embedded in these purchase transactions to factorize for profit element earned by assessee against possible purchase of material in the grey market and undue benefit of VAT against alleged bogus purchases, which Ld.CIT(A) has rightly done. Therefore, we see no reason to interfere with the stand of Ld. CIT(A).

Resultantly, the revenue’s appeal stands dismissed. Order pronounced in the open court on 04th October, 2017.