KUNJ BEHARI KEDIA,MUMBAI vs. ITO WD 30(2)(1), MUMBAI

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: -

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.

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.