CHIRAG GEMS,SURAT vs. ITO, WARD-3(3)(5)

Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

Brief facts of the case are that for assessment year 2012-13, the case of assessee was reopened on the basis of information received from DDIT(Inv.), Mumbai, that a search and seizure action was carried out under section 132 of the Act on group concerns of Shri Bhanwarlal Jain Group on 03.10.2014. During the search action, it was found that Shri Bhanwarlal Jain and his associates were operating and managing 70 benami concerns in the name of his employees or relatives through which they were providing accommodation entries of unsecured loans and sale or bogus purchase to various beneficiaries. It was also found during the survey action that one of the beneficiary of such non-genuine purchase transactions of Rs.17.50 lakh from Nice Diamonds during financial year 2011-12. On the basis of such information of DDIT(Inv.) Mumbai, the Assessing Officer recorded reasons of reopening by taking view that income of assessee to the extent of Rs.17.50 lakh as 2 (A.Y 12-13) Chirag Gems escaped from the year under consideration i.e. 2012-13. Notice under section 148 dated 31.03.2019 was served upon the assessee. The assessee in response to notice under section 148 filed its return of income on 03.09.2019 declaring income at Rs.1,80,820/-. The Assessing Officer after serving this statutory notice under section 143(2) r.w.s. 142(1) proceeded for re-assessment. The Assessing Officer after recording the modus operandi on operation of hawala operator noted that assessee has shown purchases from one of the concern managed through Shri Bhanwarlal Jain Group company. The Assessing Officer though recorded that the disallowance of unverifiable purchase @ 25% is reasonable. However, the Ld. Assessing officer made addition 100% of the purchase shown from M/s Nice Diamonds.

I have heard the submission of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Senior Departmental-Representative (Ld. Sr-DR) for the Revenue and have gone through the orders of lower authorities carefully. The Ld. AR for the assessee submits that the Assessing Officer has not given any finding on the documentary evidence produced by assessee. The sales of assessee was not disputed and the books of account was not rejected by the Assessing Officer. Although, in last paragraph of the assessment order, the assessing officer recorded that disallowance of 25% of purchases is (A.Y 12-13) Chirag Gems reasonable on account of non-verifiable. However, the assessing officer made addition of 100% of purchase. The Ld.AR for the assessee further submits that now it is settled position under law that only profit element in the disputed / bogus purchase is to be allowed and not the entire transaction. The Ld. AR for the assessee submits that assessee has shown gross profit @ 9.39% and net profit 4.34% respectively. As the assessee has shown very good gross profit and net profit, therefore no further disallowance on account of such alleged bogus purchases should be made.

In alternative submission, Ld. AR for the assessee submits that in a similar cases the Division Bench of this Tribunal has restricted or enhanced the similar type of disallowance of bogus purchases to the extent of 6%. However, in the present case, the assessee has already declared net profit @ 4.34%. In case the Bench is of the view that similar earlier orders as passed by the Division Bench of this Tribunal is to be followed, the assessee may be granted set off of net profit already declared by assessee in its return of income.

I have heard rival contentions of both the parties and have gone through the orders of lower authorities carefully. I find that the Assessing Officer made addition @ 100% of purchase from M/s Nice Diamonds. I find that Assessing Officer has not given any finding on various documentary evidences filed by the assessee to substantiate the purchase, which was filed by the assessee alongiwth his (A.Y 12-13) Chirag Gems reply dated 12/11/2019. The Assessing Officer solely relied upon the report of Investigation Wing. The NFAC/ld CIT(A) also upheld the action of Assessing Officer by simply taking view that assessee has shown purchase from the concern of assessee only occupy is to be provided accommodation entries from which cannot be genuine and has to be bogus. I further find that NFAC/CIT(A) has also not given any independent finding on various contentions raised before him. It is a settled law that in case of disputed purchases shown from such hawala dealer’s only profit element embedded in such transaction is to be disallowed, to avoid the possibility of revenue leakage and not the substantial part of transaction. Considering the fact of the present case, I am of the view that 6% of the disputed / alleged bogus purchase would meet the end of natural justice to avoid the possibility of revenue leakage. Therefore, I direct the Assessing Officer to restrict the addition to the extent of 6% of the disputed / alleged bogus purchases of Rs.17.50 and re-compute the assessment in terms of above direction. This ground No.2 of assessee’s appeal is partly allowed.