M..V SHAH & CO,MUMBAI vs. ITO 19(2)(3), MUMBAI

This is an appeal filed by the assessee against the order of CIT(A)- 30, Mumbai dated 20/01/2017 for A.Y.2007-08 in the matter of order passed u/s.144 r.w.s. 147 of the IT Act.

In this appeal, assessee is aggrieved for reopening of assessment as well as merit of the addition upheld by CIT(A) to the extent of 25% of the alleged bogus purchases.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is a partnership firm engaged in the business of 'trading of diamonds'. The return of income for the year under appeal was filed on 27/07/2007 declaring total income of Rs.8,134/-. The return was processed u/s 143(1) of the Act. Subsequently, notice u/s 148 of the Act M/s. M.V. Shah & Co., dated 25/03/2014 was issued and served on the assessee after recording the reasons for reopening. The reasons for reopening of the assessment is based on the information that Search 81 Seizure operations as well as Survey operations were conducted on 03/10/2013 by the Investigation wing, Mumbai, in the group concerns of Rajendra Jain/Sanjay Choudhary/ Dharmichand Jain and during the course of the operation, it was found that several name lending dummy directors, partners/ proprietors of various concerns belongs to the native place of Rajendra Jain/Sanjay Choudhary/ Dharmichand Jain & their family were operating the concerns, of which were literally controlled, operated and managed by them and their family and this fact was admitted by those persons in the sworn statements recorded during the course of search operation and they have also admitted that they were made to the position by Rajendra Jain/Sanjay Choudhary / Dharmichand Jain and were providing accommodation entries without supply of any goods. Post search investigation Is that the assessee has taken accommodation entries of purchases from two of these dummy concern M/s. Avi Exports (Rs. 8,26,362/-) & M/s Vitrag (Rs. 20,40,585/-), amounting to Rs.28,66,947/-.

During the course of scrutiny proceedings, AO observed that assessee has obtained accommodation bill to the tune of Rs.28,66,947/- from two parties by way of non-genuine purchases. After discussing modus operandi of the purchases from Rajendra Jain Group concerns, AO added entire amount in assessee’s income.

Against the above order, assessee is in further appeal before us.

I have considered rival contentions and carefully gone through the orders of the authorities below and found that AO has reopened assessment after recording justifiable reasons to believe that income has escaped assessment in so far as accommodation bill was taken by the assessee. I do not find anything wrong for reopening of assessment u/s.147 of the IT Act.

The AO added entire purchases to the income of assessee. The CIT(A) found that only profit has been suppressed therefore, he estimated profit of 20% of such purchases and restricted the addition to the extent of 20% of such purchases. It was argued by learned AR that CBDT vide its Circular No.2/2008 dated 22/02/2008 has held that M/s. M.V. Shah & Co., assessee engaged in the business of manufacturing or trading of diamonds and declares profit of 6% or higher, the AO should accept his trading results. In the instant case, since the goods so purchased have not been sold, the assessee had not shown any profit on such goods. Therefore, applying CBDT Circular dated 22/02/2008 and keeping in view totality of facts and circumstances of the case, I direct the AO to restrict the addition to the extent of 8% of such purchases. I direct accordingly.

In the result, appeal of the assessee is allowed in part.