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Facts
The assessee, a partnership firm engaged in diamond trading, filed its return for A.Y. 2010-11. Information was received about an accommodation entry provider involved in bogus purchases. The assessee had obtained purchase bills from two entities for Rs. 13,165,072/-, which were operated by this provider.
Held
The Tribunal observed that the CIT(A)'s approach of comparing rates between two allegedly bogus suppliers was incorrect. It noted that in earlier years, for similar issues, the addition was restricted to 3% of bogus purchases, which was not disputed by the revenue. The Tribunal found the facts in this case unique as only alleged bogus purchases were exported and there were no other genuine purchase transactions.
Key Issues
Whether the addition made on account of alleged bogus purchases is justified, and if so, to what extent, considering the assessee's past history and industry norms.
Sections Cited
143(3), 147, 69C
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAJ KUMAR CHAUHAN, JM
This appeal is filed by M/s Chaitali Gems (the assessee/appellant) for assessment year 2010 – 11 against the appellate order passed by the National faceless appeal Centre (NFAC), Delhi (the learned CIT – A) for assessment year 2010 – 11 dated 11/9/2023 wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) read with section 147 of the income tax act dated 29/12/2017 passed by the learned that income tax officer Ward 23 (1) (3), Mumbai (the learned AO) is partly allowed.
Assessee has raised following grounds of appeal:-
2. On the facts and in the circumstances of the case, the learned CIT (A) erred in upholding the addition/disallowance made by the learned AO even to extent of Rs.32,08,953/- (though quantum addition is reduced from Rs. 1,31,65,072/-) of the alleged bogus purchases without appreciating the fact that said addition was made merely on the basis of statement made by a third party and without furnishing to the appellant a copy of the said statement or affording to the appellant an opportunity to cross examine the third party.
3. On the facts and in the circumstances of the case, the learned CIT (A) erred in upholding the addition/disallowance made by the learned AO even to the extent of Rs.32,08,953/- (though quantum addition is reduced from Rs. 1,31,65,072/-) of the alleged bogus purchases ignoring umpteen number judicial pronouncements of the coordinate Benches of the Hon. ITAT wherein either no addition was sustained, or addition was restricted to 2 to 3% of the impugned alleged bogus purchases.
4. On the facts and circumstances of the case, the learned CIT (A) erred in upholding the addition/disallowance made by the learned AO even to the extent of Rs.32,08,953/- (though quantum addition is reduced from Rs. 1,31,65,072/-) of the alleged bogus purchases, which is purely based on suspicion, surmises and conjectures and even though all evidence in
5. On the facts and circumstances of the case, the learned CIT (A) erred in upholding the addition/disallowance made by the learned AO even to the extent of Rs.32,08,953/- (though quantum addition is reduced from Rs. 1,31,65,072/-) of the alleged bogus purchases as unexplained expenditure u/s. 69C even though the impugned transactions have been recorded in the duly audited regular books of account of the Appellant and all payments have been made through banking channel.
6. On the facts, the learned CIT (A) completely erred in his observation that "GP is a meagre 12.64%. The results give credence to the suspicions raised by the assessing authority" without understanding the diamond trade fully, where even the Report of the Task group for diamond sector submitted to Department of Commerce, Government of India, suggested that the net profit that could be derived in the diamond in trading activity thereof, the profitability range is 1% to 3% only. With this wrong notion and misunderstanding of GP%, the learned CIT (A) erred in upholding the addition/disallowance to the extent of Rs.32,08,953/-, which almost works out to approx. 25% of the impugned purchases.”
3. Fact shows that assessee is a partnership firm engaged in the business of trading, export and import in draft, cut and polished diamonds. Assessee filed its return of income on 20/9/2010 declaring a total income of Rs. 783,500/–. Subsequently the information was received on conduct of search on 3/10/2013 on Mr.Bhanwar LalJain an accommodation entry provider who is issuing bogus purchase bills through various Benami concerns operated and managed by him. He has confirmed in his statement the modus operandi and providing of the accommodation
4. Assessee aggrieved with the same preferred an appeal before the learned CIT – A. The learned CIT – A noted the decision of the honourable Supreme Court in 281 CTR 241 wherein it was held that when the assessment is made on the basis of the statements recorded from third parties and if those statements were not provided for cross- examination, assessment order based on the statements is bad in law. He further noted that there are many decisions that the addition made by the assessing officer on account of alleged bogus/non-genuine purchases estimation of profit at 3% of bogus purchases may be adopted. He found that the total cost of goods involved is Rs. 13,165,072/– the export made by the assesseeis Rs. 1,48,29,571/–. Thus, the total export is made out of the bogus purchases allegedly of Rs. 13,165,072. Thus, there are no other entities that were supplied to the assessee other than these two alleged bogus entities. The gross profit on by the assessee is bigger 12.64%. He also found that there is a
5. Assessee is aggrieved with that appellate order and is in appeal before us. Assessee submitted that assessee has shown the gross profit of 12.64% same is not meagre because of the reason that report of the task group for diamond sector submitted to the Department of commerce, government of India suggested that the net profit that could be derived in the diamond in trading activity the profitability ranges 1% – 3% only. Therefore, the findings of the learned and CIT – A considering the gross profit of 12.64% as meagre profit is devoid of any merit. He submits that the learned CIT – A has adopted Novell method for confirmation of the addition of Rs. 3,208,953. He found that total purchases from Mukti exports are 1174.84 carats which should have the purchase cost at the rate of 11,325 per carat as purchases of Pankaj exports. Thus, the purchases from Mukti exports were determined at Rs. 13,305,063 against the actual purchase of Rs. 10,096,110/– and thereby making an addition of Rs. 3,208,953. He stated that the goods have been exported by the assessee therefore the learned CIT – A has ignored the quality of diamond, their use also. He submits that the diamond purchased from Pankaj exports are different from diamond purchased from Mukti exports. He further referred to the decision of the honourable Gujarat High Court in the case of Vardhman exports that addition under section 69C cannot be made if the transactions are recorded in the duly audited regular books of accounts. He further referred to the several judicial precedents where the profits have been estimated at the rate of 3%. In the end he referred to the decision of
The learned departmental representative vehemently supported the order of the learned CIT – A. He submits that in this case the total sales made by the assessee are procured out of alleged bogus suppliers, therefore the learned CIT – A could not have relied upon the gross profit earned by the assessee from regular suppliers. Therefore, the learned CIT – A, the purchases of goods from both the alleged bogus suppliers at the same rate and made the addition made the suppliers purchase price was less than the other suppliers purchase value. Thus, there is no infirmity in the order of the learned CIT – A.
We have carefully considered the rival contention and perused the orders of the lower authorities. The fact shows that in the present case on dispute facts shows that assessee has purchased diamonds from two different entities amounting to Rs. 13,165,072/–. An accommodation entry provider operated both these entities. Assessee has exported these diamonds and realized export proceeds. Quantitative details of purchases in carats are also shown. On page number 57 of the paper book, it was shown that 270.99 carats of diamonds purchased on 25/5/2009 from one party or exported on 1/6/2009. Similarly other purchases of diamonds from alleged bogus suppliers were also exported
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 23.04.2024.