M/S DECENT DIAMONDS, MUMBAI V. DY CIT CENTRAL CIRCLE-5(4), MUMBAI

CO 125/MUM/2021

AI Insights

The case involves M/s Decent Diamonds, which faced scrutiny over purchases from entities linked to the Rajendra Jain group, suspected of providing accommodation entries. The assessing officer reopened the case under sections 143(3) and 147 of the Income Tax Act, adding a gross profit of 8% on these purchases. The CIT(A) reduced this to 3%, and the ITAT further reduced it to 2%, referencing similar cases and the assessee's declared higher profit rates. The ITAT's decision was influenced by precedents and the specific circumstances of the diamond industry, where the assessee had shown corresponding sales against the disputed purchases.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130087 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 14-02-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 27-09-2021
• Other Referred Cases: CITY CENTRE BUILDERS & DEVELOPERS (WP(C). No. 7668 of 2016 (G) dated 2nd day of June 2016), Perry Impex Vs. ACIT 19(2) vide ITA No. 2052/Mum/2020, dated 22.08.2022, Star Brillion Vs. ITO 19(3)(4) vide ITA No. 1551 & 1552/Mum/2020 dated 12.07.2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Accommodation entries; Tax effect
• Section: 143(3)

Judgement Text

P a g e | 1 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER C.O. Nos. 123 to 126/Mum/2021 (A.Ys. 2007-08 to 2010-11) DCIT, Central Circle-5(4) Room No. 1927, 19 th Floor, Air India Building, Nariman Point, Mumbai – 400021 Vs. M/s Decent Diamonds 501, Kheni Tower, Jogani Complex, CST Road, Kalina, Santacruz East, Mumbai – 400098 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAAFD3350J Appellant .. Respondent Appellant by : Smt. Mahita Nair Respondent by : Himanshu Gandhi Date of Hearing 15.02.2023 Date of Pronouncement 28.02.2023 आदेश / O R D E R Per Amarjit Singh (AM): All the cross objection filed by the assesse from C.O. No. 123 to 126/Mum/2021 are pertained to assessment year 2007-08 to 2010-11 based on identical issue and similar facts, therefore, for the sake of convenience all these cross objections are adjudicated together by this common order by taking the C.O. No. 123/Mum/2021 as lead case and its finding will be applied mutatis mutandis to the other 3 cross objections filed by the assesse. C.O. No. 123/Mum/2021 2. The fact in brief is that appeals of the assesse were dismissed by the ITAT vide 1652 to 1655/Mum/2020 vide order dated 06.12.2021 on P a g e | 2 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds the reasoning that revenue appeals were dismissed on account of low tax effect, therefore, assessee’s cross objection were not maintainable. Thereafter the assessee filed miscellaneous applications vide M.A. No. 125 to 128/Mum/2022 on 06.12.2021 for not adjudicating the cross objection filed by the assessee on merit. Vide ITAT order M.A. No. 125 to 128/Mum/2022 dated 22.12.2022 the miscellaneous applications filed by the assessee were allowed after following the decision of Hon’ble Kerala High Court, the relevant operating part of the decision of ITAT is reproduced as under: 5. We heard rival contentions and perused the record. We notice that the Hon’ble Kerala High Court has held as under on the status of Cross objection filed u/s 253(4) of the Act in the case of “CITY CENTRE BUILDERS & DEVELOPERS (WP(C). No. 7668 of 2016 (G) dated 2nd day of June 2016) “3. Cross objection is filed under Section 253(4) of the Income Tax Act. When a cross objection is filed in an appeal, it has to be treated as an independent appeal and has to be decided irrespective of the fact as to whether the appeal filed by the department has been dismissed on whatever grounds. There is no doubt about the above proposition. The appellate authority was therefore not justified in rejecting the cross objection as infructuous.” Accordingly, having regard to the submissions made by the assessee in its petition, we are of the view that there are mistakes apparent from record in dismissing the cross objections filed by the assessee without considering the decisions rendered by the co-ordinate benches. Accordingly, we recall all the four cross objections filed by the assessee and direct the registry to post these cross objections in the normal course.” In view of the aforesaid order dated 22.12.2022 the grounds of appeal are adjudicated as follows:- The fact in brief is that the case of the assessee was reopened u/s 143(3) r.w.s. 147 of the Act on the basis of information received from the search action carried out in the case of Rajendra Jain group on 03.10.2013 that they were engaged in providing accommodation entries of bogus purchases from various concerns of Rajendra Jain group. The assessing officer found that assessee has shown purchases from group concern pertaining to Rajendra Jain P a g e | 3 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds group during the financial year 2006-07 relevant to assessment year 2007-08 as under: Sr. No. Name of the hawala parties Bill Amount 1. M/s Avi Exports 1,36,47,966/- 2. M/s Moulimani Impex Pvt. Ltd. 3,86,30,601/- 3. M/s Sun Diam 4,98,90,059/- 4. M/s Vitrag Jewels 2,09,14,864/- Total 12,30,83,490/- 3. On query the assessee furnished copies of invoices, copies of bank statement evidencing payment made through banking channel by issuing of account payee cheque to the aforesaid parties. The assessee has also furnished confirmatory statement of accounts in the books of both the concern parties. However, the assessing officer was of the view that aforesaid concern of Rajendra Jain Group was indulged in providing accommodation entries and therefore, mere filing of evidences in support of purchases cannot be conclusive in cases where genuineness of transaction was in doubt. Therefore, the A.O concluded that assessee had obtained only the bills from the aforesaid concern without actually getting the material. The A.O also stated that since the assesse had demonstrated corresponding sales against the purchases from Rajendra Jain Group, therefore, it can only be concluded that the purchases were made by the assessee from grey market and bills were obtained from group concerns of Rajendra Jain group. The A.O further stated that in such type of transaction gross profit always remained higher than the average gross profit. Consequently, the assessing officer has estimated gross profit at 8% of such purchases to the amount of Rs. 89,46,679/- and the same was added to the total income of the assessee. P a g e | 4 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds 4. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) after referring the various judicial pronouncements restricted the disallowance to the extent of 3% of the purchases and partly allowed the appeal of the assessee. 5. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above in this order it is undisputed fact that assessing officer had accepted the fact that assessee has made corresponding sales against the impugned purchases made from the group concern of Rajendra Jain group. During the course of assessment the assessee submitted the copies of ledger account, copy of bank statement, purchase invoices and evidences of payment made by account payee cheques etc. It is evident from the findings of the lower authorities that the genuineness of the sales made in corresponding of purchases were not doubted. In fact the assessing officer has categorically pointed out that assessee has been benefitted by margin of actually making purchases in the grey market against bills obtained from the concern of Rajendra Jain without supplying of any material. These facts were also upheld by the ld. CIT(A) in his finding by restricting the addition to the extent of 3% of such purchases. 6. During the course of appellate proceedings before us the ld. Counsel has referred the decision of ITAT, Mumbai in the case of Perry Impex Vs. ACIT 19(2) vide ITA No. 2052/Mum/2020, dated 22.08.2022 and the decision of ITAT in the case of Star Brillion Vs. ITO 19(3)(4) vide ITA No. 1551 & 1552/Mum/2020 dated 12.07.2022. The facts and circumstances in the aforesaid cases are similar to the case of the assessee and in those cases the parties were engaged in dealing in diamond. In the case of Star Brillion similarly purchases were made from Shri Rajendra Jain group and the A.O held that the purchases made by the assessee were not proved beyond the reasonable doubt as P a g e | 5 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds the supplier belong to Rajendra Jain group. Accordingly, the assessing officer estimated the profit element embedded in the value of such disputed purchases at 5%, however, the ld. CIT(A) has reduced the same to 3% and therefore the ITAT has estimated the profit percentage embedded in the value of disputed purchases @ 2%. In the case of the assessee the ld. Counsel has filed summary of chart on 13.02.2023 showing that in the assessment year 2007-08 to 2010-11 the assessee had already declared gross profit at 5.40%, 5.24%, 5.08% and 5.08% respectively in the different assessment year. From these facts the assessee has demonstrated that they have already reported higher profit on the purchase transaction made from the group concern of Rajendra Jain as against gross profit rate adopted by the task force formed by the Government of India (Ministry of Commerce and Industry, Department of Commerce) for diamond industry. 7. Considering the above facts and the percentage of gross profit already shown by the assessee after following the decision of ITAT as referred above we consider it appropriate to restrict the addition to the extent of 2% of the impugned purchases. Accordingly, we restrict disallowance to the extent of 2% of such purchases. Therefore, the ground no. 3 of the assessee is partly allowed. 8. The ground No. 1 & 2 pertaining to reopening of assessment was not pressed, therefore, the same stand dismissed. C.O. No. 124 /Mum/2021 Ground No. 3 9. As the facts and issues involved in this ground of appeal is same as C.O. No. 123/Mum/2021 as supra, therefore, applying the same findings mutatis mutandis this ground of appeals of the assesse is also partly allowed. P a g e | 6 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds Ground 1 & 2: 10. As the facts and issues involved in these grounds of appeals are same as C.O. No. 123/Mum/2021 as supra, therefore, applying the same findings mutatis mutandis these grounds of appeals of the assesse are also stand dismissed. C.O. No. 125/Mum/2021 Ground No. 3 11. As the facts and issues involved in this ground of appeal is same as C.O. No. 123/Mum/2021 as supra, therefore, applying the same findings mutatis mutandis this ground of appeals of the assesse is also partly allowed. Ground 1 & 2: 12. As the facts and issues involved in these grounds of appeals are same as C.O. No. 123/Mum/2021 as supra, therefore, applying the same findings mutatis mutandis these grounds of appeals of the assesse are also stand dismissed. C.O. No. 126/Mum/2021 Ground No. 3 13. As the facts and issues involved in this ground of appeal is same as C.O. No. 123/Mum/2021 as supra, therefore, applying the same findings mutatis mutandis this ground of appeals of the assesse is also partly allowed. Ground 1 & 2: 14. As the facts and issues involved in these grounds of appeals are same as C.O. No. 123/Mum/2021 as supra, therefore, applying the P a g e | 7 C.O nos. 123 to 126/Mum/2021 DCIT, CC-5(4) Vs. M/s Decent Diamonds same findings mutatis mutandis these grounds of appeals of the assesse are also stand dismissed. 15. In the result, the Cross Objection filed by the assessee are partly allowed. Order pronounced in the open court on 28.02.2023 Sd/- Sd/- (Kuldip Singh) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 28.02.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.