Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Kunj Behari Kedia Income Tax Officer, 227 Rajratna Indl Estate, Liberty Ward 30(2)(1) Garden RD Opp Sndt Girls Vs. Mumbai-20 College, Malad (W) Mumbai-400 064 Appellant .. Respondent PAN No. ABOPK7365F Assessee by .. Shri Ritesh Jain, AR Revenue by .. Miss Beena Santosh, DR Date of hearing .. 14-03-2017 Date of pronouncement .. 14-03-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-41, Mumbai, in appeal No CIT(A)-41/IT-37/14-15 dated 01-04-2016. The Assessment was framed by ITO-30(2)(1), Mumbai for the A.Y. 2007-08 vide order dated 30-01-2015 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assesse is against the order of CIT(A) confirming the reopening of assessment. For this assessee has raised following ground No.1: - “On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in reopening the case under section 148 of the Act, without considering the facts and circumstances of the case.”
At the outset, the learned Counsel for the assessee stated that assessee is not interested in prosecuting this ground and hence, the same is dismissed as not pressed.
The next issue in this appeal of assessee is against the order of CIT(A) in sustaining the addition of gross profit at 30% of alleged bogus purchases of Rs. 17,11,199/-. For this assessee has raised following ground No.2: -
2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in sustaining the addition on account of suppression of Gross Profit of Rs. 4,13,360/- being 30% of alleged bogus purchases of Rs. 17,11,199/-, without considering the facts and circumstances of the case.”
Briefly stated facts are that the assessee is an individual engaged in the business of diamond and gold studded jewellery. During the course of the assessment proceedings, the AO had information that during the year under consideration the assessee made purchases of Rs. 17,11,199/- from one Vitrag Jewelers, a proprietor concerns of Rajendra Jain, who during the course of search by the department under section 132 of the act accepted before the department that Vitrag jewelers is a company to whom no actual sale or purchase of diamond is made but it only provides accommodation bills to various persons. The AO require the assessee to prove the purchase made from party M/s Vitrag jewelers of Rs. 17,11,199/-. The assessee submitted all the documentary evidences in support of purchase made from this party such as ledger copy, purchase invoices, bank statements are also getting the payment made to this party, sale invoices etc. in order to prove that the transaction with the said party were genuine transactions. The assessee also furnish copy of invoices of diamonds and their direct nexus and usage in manufacturing of jewellery by mapping purchase with sales which was rejected by the AO. The AO rejected for the reason that the assessee failed to produce documentary evidences like delivery challans, transportation bills, goods receipt note, stock register and even in response to notice under section 133(6) of the Act Shri Rajendra Jain proprietor of Vitrag jewelers could not attend. The AO also noted that the signature of the proprietor on sale bills submitted by assessee is different from signature on confirmation of accounts. According to the AO, even copy of sale bill submitted on 05-08-2014 was found different than the bills submitted on 19- 12-2014 and 17-01-2015. Even address is mentioned in the aforesaid two bills were different. Accordingly, the AO held that the entire purchase made through Vitrag Jewels is bogus and added the entire bogus purchase. Aggrieved assessee preferred the appeal before CIT(A) who estimated the profit rate at 30% and disallowed by observing in Para 5.2 to 5.9 as under: - “5.2 So far merits related to addition of Rs. 17,11,199/- are concerned, Shri Rajendra Jam, the main person of Rajendra Jain group had admitted on oath that Vitrag Jewels is run by his employee Mudit P. Karnwat and no actual sale or purchase of diamonds has been made through the said concern. Only accommodation bills have been provided. The notice u/s 133(6) issued to the party concerned was returned back unserved and the assessee too had failed to produce the concerned party. No evidence of actual delivery could be placed by the appellant. The name of Vitrag Jewels is appearing in the detailed modus operandi of providing accommodation bills explained by Shri Rajendra Jain Production register was not produced to justify that the purchases from above party was used to produce a particular jewellery. There is also a doubt of different signatures and address on the sale bill submitted by the assessee at different points of time.
5.3 Confirmation of accounts with M/s. Vitrag Jewels show that entire jewellery of Rs. 17,11,199/- was purchased on 10.10.2006. Not a single paisa was paid till 31.3.2006. The payments were made by four cheques in April and May, 2007. This fact has also some relevance and indicates towards bogus purchase.
5.4 The affidavit of proprietor of Vitrag Jewels is dated 7.8.2014. The Search was conducted on 03/10/2013 wherein statement of Rajendra Jain was recorded who admitted the bogus sale by Vitrag Jewels run by his employee.
5.5. The appellant further filed copy of affidavit of Mr. Mudit Karnavat dated 12.01.2015 filed with Central Circle-4, Surat retracting the statement u/s 131 dated 28/11/2013. This retraction has no relevance as it was filed after a long time gap and that too in Surat when his statement was recorded in Mumbai. Further, Rajendra Jam, main person does not seem to have retracted from his statement.
5.6 In view of above, it is held that this was definitely a case of bogus purchase and the appellant has taken bogus bills from Vitrag Jewels. Now, the question arises as to the quantum of disallowances. The AO has relied on two decisions of the High Courts before making 100 % disallowance. The facts in those cases and level of enquiries are not the same as in the present case. I am of the opinion that disallowance of 100% of the purchase amount is not justified unless it is proved that the entire cash was returned and came to the pocket of the assessee and the assessee has not purchased any material from any other source. In the present case, in-depth enquiries were not conducted by the AO. The AO did not carry out further investigation from the bank to examine whether the supplier had withdrawn cash from his account.
5.7 It is also a fact that the appellant has failed to establish conclusively that the goods were purchased from the parties which had issued the bills. Natural inference is that either it was purchased from different source or the same were out of suppressed stock of past period because sales are not in dispute.
5.8 Further, without a much bigger benefit than the normal GP ratio, no prudent person will enter into transactions of purchasing materials from one source and taking bills from another. As a consequence, the profit embedded in such transactions of purchase and sales will be much higher than normal GP ratio.
5.9 In the facts and circumstances of the case, I find 30% of purchase disallowance to be fair and reasonable in this case. Accordingly, addition of Rs. 5,13,360/4 being 30% of Rs. 17,11,199/-] is sustained and balance Rs. 11,97,839/-[ being 70% of Rs. 17,11,199/-] is deleted. The ground is partly allowed.”
Aggrieved, now assessee is in second appeal before Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. We find that assessee has submitted all the documentary evidence in support of purchases made from this party such as ledger copy, purchases invoice, bank statement reflecting the payment made to these parties, Sates invoices etc. in order to prove the transactions with the said parties were genuine transaction. The assessee also furnished copy of invoices of diamonds and their direct nexus and usage in manufacture or jewellery by mapping purchases with sates which was rejected without assigning any reason. The sates of diamond jewellery were accepted by using the same diamonds which were claimed to be bogus purchases without appreciating that there cannot be any sates of diamond jewellery without purchases of the aforesaid diamonds.
In view of the above facts, we observe that the Hon'ble Gujarat High Court in the case of CIT(A) v. Smith P Seth 365 ITR 451 (Guj) wherein Hon’ble High Court’s finding is that estimation of rate of profit may unnecessarily very with the nature of business and no uniform yardsticks can be adopted. Hon'ble High Court has confirmed the profit rate of 12.5% of the bogus purchases as estimated by ITAT being profit and embedded of such transaction, we also estimate the profit rate at 15% instead of profit estimated by CIT(A) at 30%. We direct the AO to re-compute the income accordingly.
In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 14-03-2017.