RADIANT GEMS, MUMBAI V. ITO 25(3), MUMBAI

CO 153/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4919 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 11-06-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Bogus purchase; Rejection of books of accounts; Search and seizure; Question of law; Accommodation entries; Set aside
• Section: 40A(3); 142(1)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI , . , , BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER, ITA NO.4146/MUM/2017 ASSESSMENT YEAR: 2013-14 ACIT - 25(3), ROOM NO.601, C-10, 6 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051 / VS. M/S RADIANT GEMS, 701C, GOKUL DIVINE, S.V. ROAD, DATTA WADI, VILE PARLE WEST, MUMBAI-400056 ( / REVENUE) ( !'# /ASSESSEE) P.A. NO.AAJFR3662E CO NO.153/MUM/2018 (ARISING OUT OF ITA NO.4146/MUM/2017) ASSESSMENT YEAR: 2013-14 M/S RADIANT GEMS, 701C, GOKUL DIVINE, S.V. ROAD, DATTA WADI, VILE PARLE WEST, MUMBAI-400056 / VS. ACIT - 25(3), ROOM NO.601, C-10, 6 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051 ( !'# /ASSESSEE) ( / REVENUE) P.A. NO. AAJFR3662E !'# / ASSESSEE BY MS. DINKLE HARIYA / REVENUE BY SHRI D.G. PANSARI - CIT - DR 2 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS $ %# / DATE OF HEARING : 02/05/2019 %# / DATE OF ORDER: 17/05/2019 / O R D E R PER G. MANJUNATHA (ACCOUNTANT MEMBER) THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LD. CIT(A)-37, MUMBAI , DATED 17/03/2017 AND THEY PERTAINS TO AY. 2013-14. THE ASSESSEE HAS RAISED FO LLOWING GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 9,21,96,9657- TO 3 % I.E RS 27,65,909 ON ACCOUNT OF BOGUS PURCHASES .' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE AD DITION WAS MADE ON THE BASIS OF INFORMATION RECEIVED FROM DIT(INV.) AND SA LES TAX DEPARTMENT, MAHARASHTRA WITH REGARD TO BOGUS PURCHASE MADE BY T HE ASSESSEE FROM DEALERS WITHOUT SUPPLY OF ACTUAL GOODS.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT HAWALA DEALERS HAVE ADMITTED ON OATH BEFORE THE SALES TAX AUTHORITIES THAT THEY HAVE NOT SOLD ANY MATERIAL TO ANYBODY.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN NOT CONSIDERING THAT THE AS SESSEE COULD NOT PROVE THE GENUINENESS AND CREDIT WORTHINESS OF THE PURCHA SE TRANSACTIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS.' 5. 'L0N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ESTIMATING THE PROFIT AT 3 % OF THE TOTAL ALLEGED BOGUS PURCHASES FROM BHANWARLAL JAIN GROUP WITHOUT APPREC IATING THE FACT THAT IT IS NOT INCUMBENT ON CIT(A) TO RESTRICT SUCH DISALLO WANCE TO ONLY 3 % AND WHILE DOING SO, LD. CIT(A) HAS FAILED TO CONFORM TH E RATIO LAID DOWN BY THE HON'BLE APEXCOURT IN THE CASE OF NK PROTEINS LTD VS DCIT IN SLP(CIVIL)NO. 769/2017 DATED 16.01.2017.' 6. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT PURCHASES WERE MADE FROM SOME OTHER PARTIES WHICH WERE NOT RECORDED IN THE B OOKS OF ACCOUNTS AND ONLY ACCOMMODATION'BILLS WERE OBTAINED FROM HAWALA PARTIES AND THERE BY ATTRACTING PROVISIONS OF SECTION 40A(3).' 3 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS 7. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT APPLICABILITY OF PROVISIONS OF SECTION 40A(3) ATTRACTS 100% BOGUS PURCHASES TO BE HELD AS PROFIT.' 8. 'THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED.' 2. THE BRIEF, FACTS OF THE CASE ARE THAT THE ASSESS EE PARTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF TRADING IN DIAMOND POLISHED AND ROU GH, FILED ITS RETURN OF INCOME FOR AY 2013-14 ON 30/09/2013 DECLARING TOTAL INCOME AT RS. 30,82,990/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) WERE ISSUED. IN RESPONSE OF NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILE D VARIOUS DETAILS, AS CALLED FOR .DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O HAS RECEIVED INFORMATION FROM DGIT(INV.), MUMBAI, THAT A SEARCH AND SEIZURE WAS C ARRIED OUT IN THE CASE OF SHRI BHANWARLAL JAIN GROUP AND ITS ASSOCIATES, WHEREIN, IT WAS FOUND THAT THE SHRI BHANWARLAL JAIN AND HIS ASSOCIATES WERE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES OF UNSECURED LOANS, SHARE CAPITAL AND PURCHASE TO L ARGE NUMBER OF PARTIES THROUGH VARIOUS BENAMI CONCERNS. IT WAS FURTHER OBSERVED TH AT THE ASSESSEE WAS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF RS.9,21,96, 965/- FROM M/S LAXMI TRADING COMPANY A COMPANY CONTROLLED BY SHRI BHANWARLAL JAI N AND ITS ASSOCIATES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO IN ORDER T O ASCERTAIN CORRECTNESS OF PURCHASES FROM M/S LAXMI TRADING COMPANY CALLED UPO N THE ASSESSEE TO FILE NECESSARY EVIDENCES, TO JUSTIFY PURCHASES IN THE BA CKDROP OF REPORT OF DGIT(INV.). IN 4 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS RESPONSE, THE ASSESSEE VIDE LETTER DATED 25/02/2016 SUBMITTED COPIES OF PURCHASE LEDGER, SALES LEDGER, STOCK REGISTER AND COPIES OF AMIT DIAMONDS INCLUDING AFFIDAVIT AND CONFIRMATION TO ARGUE THAT PURCHASE FROM TWO PARTIE S ARE GENUINENESS WHICH ARE SUPPORTED BY NECESSARY EVIDENCES. THE AO, BASED ON THE INFORMATION RECEIVED FROM THE DGIT(INV.) COUPLED WITH FURTHER ENQUIRY CONDUCT ED DURING THE COURSE OF SEARCH CAME TO THE CONCLUSION THAT ALTHOUGH THE ASSESSEE H AS FILED CERTAIN BASIC EVIDENCES IN RESPECT OF PURCHASES FROM M/S LAXMI TRADING COMPANY , BUT FAILED TO FILE FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS FROM TH E DGIT(INV.) THAT THE ASSESSEE IS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDE D BY SHRI BHANWARLAL JAIN. THEREFORE, HE CAME TO THE CONCLUSION THAT ASSESSEE MIGHT HAVE PURCHASED GOODS FROM GREY MARKET, BUT OBTAINED BILLS FROM SHRI BHANWARLA L JAIN IN ORDER TO SAVE TAXES AND GET MORE MARGIN, THEREFORE, CONSIDERING ALL THESE FACTS CAME TO THE CONCLUSION THAT PURCHASES FROM THE ABOVE PARTIES IS BOGUS IN NATURE AND ACCORDINGLY ESTIMATED 12.5% PROFIT ON ALLEGED BOGUS PURCHASES AND MADE ADDITION S OF RS.1,15,24,260/-. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 4. BEFORE THE LD. CIT(A), THE ASSESSEE HAS REITERAT ED ITS SUBMISSIONS MADE BEFORE THE AO TO THE ARGUE THAT THE AO MADE ADDITIONS TOWA RDS ALLEGED BOGUS PURCHASES ONLY ON THE BASIS OF REPORT OF DGIT(INV.) WITHOUT BRINGI NG ON RECORD ANY CONTRARY EVIDENCES TO PROVE THAT PURCHASES FROM M/S LAXMI TRADING COMP ANY IS BOGUS IN NATURE, DESPITE 5 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS THE ASSESSEE HAS FURNISHED COMPLETE SET OF DOCUMENT S, INCLUDING CONFIRMATIONS AND AFFIDAVIT OF M/S DEEPAK MEHTA PARTNER OF M/S LAXMI TRADING COMPANY. THE ASSESSEE HAS ALSO FILED COMPLETE STOCK DETAILS. THE AO NEVER REJECTED THE BOOKS OF ACCOUNTS NOR POINTED OUT ANY DEFECTS IN BOOKS BEFORE ESTIMATING PROFIT ON ALLEGED BOGUS PURCHASES. IN ABSENCE OF INCORRECTNESS IN BOOKS OF ACCOUNTS OR MADE OUT A CASE OF SALES OUTSIDE BOOKS OF ACCOUNTS, NO ADVERSE INFERENCE COULD BE DR AWN THAT THE ASSESSEE HAS NOT DISCHARGED ITS BURDEN BY FILING COMPLETE DETAILS. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND ALSO RELIED UPON VARIOUS JUDICIAL PRECEDENCE INCLUDING T HE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIMIT SHETH (2013) 38 T AXMANN.COM 385(GUJ.) HELD THAT IT IS DIFFICULT TO ACCEPT THE ARGUMENT OF THE ASSESSEE TH AT PURCHASES FROM M/S LAXMI TRADING COMPANY IS GENUINE WHICH IS SUPPORTED BY NECESSARY EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS FROM THE DGIT(INV.), MUMBAI, WHERE I T WAS FOUND THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVI DED BY SHRI BHANWARLAL JAIN AND ITS ASSOCIATES. THEREFORE, HE CAME TO THE CONCLUSION TH AT THE ASSESSEE COULD NOT PROVE THE PURCHASES TO THE SATISFACTION AND ACCORDINGLY BY TA KING INTO ACCOUNT THE FACT THAT THE ASSESSEE HAS FILED COMPLETE SET OF DOCUMENTS AND AL SO THE FACT THAT THE PROFIT ELEMENT IN DIAMOND TRADING INDUSTRIES IS AROUND 2 TO 3% WHI CH IS FURTHER SUPPORTED BY THE EXPERT COMMITTEE ON DIAMOND TRADE INDUSTRIES WHERE IT WAS SUGGESTED 2 TO 3% PROFIT UNDER BAP SCHEME, SCALED DOWN ADDITIONS MADE BY THE AO TO WARDS ALLEGED BOGUS PURCHASES 6 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS TO 3% AS AGAINST 12.5% PROFIT ADDED BY THE AO. THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE AS UNDER:- 5. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT OR DER PASSED BY THE A.O, WRITTEN SUBMISSIONS FILED BY THE APPELLANT AND RELE VANT CASE LAWS CITED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS. THE SUBMISSION AND CONTENTION OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED AS UNDER:- 5.1 IN THE INSTANT CASE IT IS SEEN THAT ALL THE GRO UNDS OF APPEAL PERTAIN TO DISALLOWANCE OF RS,1,15,24,620/-. FOR THE SAKE OF C ONVENIENCE, ALL THE GROUNDS ARE DISPOSED TOGETHER. 5.2 THE AO RECEIVED AN INFORMATION FROM THE DIT(INV ESTIGATION), MUMBAI THAT A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT IN BHANWARLAL JAIN GROUP AND VARIOUS OTHER PERSONS WHEREIN IT WAS FOUN D THAT SHRI BHANWARLAL JAIN ALONG WITH HIS ASSOCIATES HAVE PROVIDED THAT A CCOMMODATION ENTRIES IN FORM OF UNSECURED LOANS/DEPOSITS/PURCHASES ENTRIES TO A LARGE NUMBER OF PARTIES THROUGH VARIOUS BENAMI CONCERNS. THE ASSESS EE WAS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES OF RS.9,21,96, 965/- FROM M/S. LAXMI TRADING. THE A.R. OF THE APPELLANT APPEARED AND FUR NISHED DETAILS AND EXPLANATION DURING THE ASSESSMENT PROCEEDINGS BEFOR E THE A.O. THE APPELLANT VIDE LETTER DTD.25/03/2015 SUBMITTED THE COPY OF PURCHASE LEDGER, SALES LEDGER, STOCK REGISTER AND COPY OF AMIT DIAMO ND ALONGWITH COPIES OF THE AFFIDAVIT AND CONFIRMATION. THE ASSESSEE HAS PR ODUCED PURCHASE AND SALES DETAILS ALONG WITH QUANTITATIVE DETAILS AND N O ADVERSE INFERENCE HAS BEEN DRAWN BY THE ASSESSING OFFICER ON THE SAME AND HENCE CONTEMPORANEOUS RECORDS ESTABLISHES THE PURCHASES A S GENUINE. THE BOOKS OF ACCOUNTS ARE NOT REJECTED BY THE ASSESSING OFFICER. NO DEFECTS ARE FOUND IN THE BOOKS OF ACCOUNTS. IT IS RESPECTFULLY SUBMITTED THAT THE ENTIRE SALES HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AN D HAS NOT DISPUTED THE VERACITY OF THE CONSUMPTION AND QUANTITATIVE DETAIL S FILED BY THE ASSESSEE. THE ASSESSEE HAD DISCHARGED ITS ONUS OF PROVING THE TRANSACTION AS GENUINE WITH ALL SORTS OF EVIDENCES. THE ASSESSING OFFICER HAS MADE ADDITION OF RS.1,15,24,520/- ON ACCOUNT OF ALLEGED BOGUS PURCHASES SIMPLY RELYING ON THE INFORMATION RECEIVED FROM THE DG(INV ) AND WITHOUT ANY INDEPENDENT APPLICATION OF MIND. 5.3 FURTHER STATED THAT THE APPELLANT FIRM HAS UNDE RTAKEN TRANSACTION WITH THE SAID PARTY AND APPELLANT IS NOT AWARE OF THE FA CT THAT THE SAID PARTY IS INDULGED IN PROVIDING ACCOMMODATION ENTRIES AND, TH EREFORE, UNLESS AND UNTIL THE CROSS EXAMINATION IS PROVIDED AND SAME CA NNOT UNDER WHAT CIRCUMSTANCES THE SAID STATEMENT GIVEN BY THE THIRD PARTY CAN BE UTILIZED AGAINST ASSESSEE. HENCE, THE CROSS EXAMINATION OF THE PARTY CONCERNED IS VERY MUCH ESSENTIAL TO FIND OUT THE TRUTH OF THE SA ID ALLEGED STATEMENT GIVEN BY HIM SINCE THE SAID STATEMENT IS BEING USED AGAIN ST THE APPELLANT COMPANY. 5.4 FROM THE ASSESSMENT ORDER, IT TRANSPIRES THAT T HE AO HAS SOLELY RELIED UPON THE STATEMENTS OF BHANWARLAL JAIN AND DID NOT CARRY OUT ANY 7 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS WORTHWHILE INDEPENDENT INQUIRY IN THE MATTER. HE HA S TOTALLY IGNORED THE DOCUMENTARY EVIDENCES SUBMITTED BY THE APPELLANT. T HE AO IN THE ASSESSMENT ORDER HAS ADMITTED EXISTENCE OF THESE DE TAILS. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE ABOVE MENTIONED DOCUM ENTARY EVIDENCES SUBMITTED DURING ASSESSMENT PROCEEDINGS. WITHOUT PO INTING OUT ANY LACUNA IN THE EVIDENCES SUBMITTED BY THE APPELLANT, THE SO URCES AND THE GENUINENESS CANNOT BE DOUBTED. ONCE EVIDENCES RELAT ED TO A TRANSACTION IS SUBMITTED BEFORE THE A.O., THE ONUS SHIFTS ON HIM T O PROVE THESE AS NON- GENUINE OR BOGUS. THE A.O. HAS NOT DISCHARGED THE O NUS CASTED ON HIM. IN MY OPINION, MERELY BASED ON THE STATEMENT OF A THIR D PERSON WITHOUT ANY CORROBORATIVE EVIDENCE WILL NOT MAKE THE TRANSACTIO NS, IN QUESTION, AS NON- GENUINE OR BOGUS TRANSACTION. AS SUCH, IN THE ABSEN CE OF ANY CONTRARY EVIDENCE PLACED ON RECORD, THE TRANSACTION CANNOT B E TREATED AS BOGUS OR PAPER TRANSACTION. 5.5 AS FAR AS THE QUESTION OF VALIDITY OF THE TRANS ACTION, EVEN IF SOME OF THE TRANSACTIONS ENTERED INTO BY THE ABOVE PARTIES ARE FOUND TO BE NOT GENUINE, IT DOES NOT LEAD TO THE CONCLUSION THAT ALL THE TRA NSACTIONS ENTERED INTO BY THESE PARTIES WERE BOGUS OR NON-GENUINE INCLUDING T HE TRANSACTIONS RELATED TO THE APPELLANT. THERE IS NO EVIDENCE BROUGHT IN T HE ASSESSMENT ORDER TO PROVE THE ABOVE CONCLUSION, BY THE AO. THE REASSESS MENT PROCEEDINGS WERE WIDE OPEN AND THE AO COULD HAVE CARRIED OUT IN DEPENDENT INVESTIGATION TO PROVE HIS ARGUMENT REGARDING THE B OGUS OR NON-GENUINE TRANSACTIONS. NO SUCH INVESTIGATION HAS BEEN CARRIE D OUT BY THE AO. THE OUTCOME OF INVESTIGATION CARRIED OUT IN THE CASE OF BHANWARLAL JAIN, THE CONCLUSIONS DRAWN THEREIN CANNOT BE APPLIED IPSO FA CTO TO ALL OTHER CASES WHO HAVE DEALT IN THE TRANSACTIONS DURING THAT PERI OD. SIMPLY RELYING ON THE REPORT OF THE INV. WING, MUMBAI AND STATEMENT THE A O CANNOT CONCLUDE THAT ALL TRANSACTIONS ARE BOGUS OR HAVE NO CREDENTIAL VA LUE. 5.6 THE CROSS EXAMINATION OF THE PARTY CONCERNED IS VERY MUCH ESSENTIAL TO FIND OUT THE TRUTH OF THE SAID ALLEGED STATEMENT GI VEN BY HIM SINCE THE SAID STATEMENT IS BEING USED AGAINST THE ASSESSEE COMPAN Y. THE HONTLE APEX COURT IN THE CASE OF ANDAMAN TIMBER INDUSTRIES IN C IVIL APPEAL NO.4228 OF 2006 HELD AS UNDER:- ACCORDING TO US, NOT ALLOWING THE ASSESSEE TO CROSS EXAMINE THE WITNESSES BY THE ADJUDICATING AUTHORITY THOUGH THE STATEMENTS OF THOSE WITNESSES WERE MADE THE BASIS OF THE IMPUGNED ORDER IS A SERIOUS FLAW WHICH MAKES THE ORDER NULLITY INASMUCH AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURLA JUSTICE BECAU SE OF WHICH THE ASSESSEE WAS ADVERSELY AFFECTED. IT IS TO BE BORNE IN MIND THAT THE ORDER OF THE COMMISSIONER WAS BASED UPON THE STATEM ENTS GIVEN BY THE AFORESAID TWO WITNESSES. EVEN WHEN THE ASSESSVE DISPUTED THE CORRECTNESS OF THE STATEMENTS AND WANTED TO CROSS-E XAMINE, THE ADJUDICATING AUTHORITY DID NOT GRANT THIS OPPORTUNI TY TO THE ASSESSEE. IT WOULD BE PERTINENT TO NOTE THAT IN THE IMPUGNED ORDER PASSED BY THE ADJUDICATING AUTHORITY HE HAS SPECIFICALLY MENT IONED THAT SUCH AN OPPORTUNITY WAS SOUGHT BY THE ASSESSEE. HOWEVER, NO SUCH OPPORTUNITY WAS GRANTED AND THE AFORESAID PLEA IS N OT EVEN DEALT WITH BY THE ADJUDICATING AUTHORITY. AS FAR AS THE T RIBUNAL IS 8 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS CONCERNED, WE FIND THAT REJECTION OF THIS PLEA IS T OTALLY UNTENABLE. THE TRIBUNAL HAS SIMPLY STATED THAT CROSS-EXAMINATI ON OF THE SAID DEALERS COULD NOT HAVE BROUGHT OUT ANY MATERIAL WHI CH WOULD NOT BE IN POSSESSION OFTHE APPELLANT THEMSELVES TO EXPLAIN AS TO WHY THEIR EX-FACTORY PRICES REMAIN STATIC. IT WAS NOT FOR THE TRIBUNAL TO HAVE GUESS WORK AS TO FOR WHAT PURPOSES THE APPELLANT WA NTED TO CROSS- EXAMINE THOSE DEALERS AND WHAT EXTRACTION THE APPEL LANT WANTED FROM THEM, AS MENTIONED ABOVE, THE APPELLANT HAD CONTESTED THE TRUTHFULNESS OF THE STATEMENTS OF THESE TWO WITNESSES AND WANTED TO DISCREDIT THEIR TESTIMONY FOR WHICH PURPOSE IT WANTED TO AVAIL THE OPPORTUNITY QF CROSS-EXAMINATION. THAT APART, THE ADJUDICATING AUT HORITY SIMPLY RELIED UPON THE PRICE LIST AS MAINTAINED AT THE DEP OT TO DETERMINE THE PRICE FOR THE PURPOSE OF LEVY OF EXCISE DUTY. WHETH ER THE GOODS WERE, IN FACT, SOLD TO THE SAID DEALERS/WITNESSES A T THE PRICE WHICH IS MENTIONED IN THE PRICE LIST ITSELF COULD BE THE SUB JECT MATTER OF CROSS- EXAMINATION. THAT APART, THE ADJUDICATING AUTHORITY SIMPLY RELIED UPON THE PRICE LIST AS MAINTAINED AT THE DEPOT TO D ETERMINE THE PRICE FOR THE PURPOSE OF LEVY OF EXCISE DUTY. WHETHER THE GOODS WERE, IN FACT, SOLD TO THE SOLD DEALERS/WITNESSES AT THE PRI CE WHICH IS MENTIONED IN THE PRICE LIST ITSELF COULD BE THE SUB JECT MATTER OF CROSS- EXAMINATION THEREFORE, IT WAS NOT FOR THE ADJUDICAT ING AUTHORITY TO PRESUPPOSE AS TO WHAT COULD BE THE SUBJECT MATTER O F THE CROSS EXAMINATION AND MAKE THE REMARKS AS MENTIONED ABOVE . WE MAY ALSO POINT OUT THAT ON AN EARLIER OCCASION WHEN THE MATTER CAME BEFORE THIS COURT IN CIVIL APPEAL NO.2216 OF 2000, ORDER DATED 17- 03-2005 WAS PASSED REMITTING THE CASE BACK TO THE T RIBUNAL WITH THE DIRECTIONS TO DECIDE THE APPEAL ON MERITS GIVING IT S REASONS FOR ACCEPTING OR REJECTING THE SUBMISSIONS. IN VIEW THE ABOVE, WE ARE OF THE OPINION THAT IF TH E TESTIMONY OF THESE TWO WITNESSES IS DISCREDITED, THERE WAS NO MA TERIAL WITH THE DEPARTMENT ON THE BASIS OF WHICH IT COULD JUSTIFY I TS ACTION, AS THE STATEMENT O THE AFORESAID TWO WITNESSES WAS THE ONL Y BASIS OF ISSUING THE SHOW CAUSE NOTICE. 5.7 IN THIS CASE, AO NOT DOUBTED THE GENUINENESS OF SALES, HOWEVER HELD THAT THE APPELLANT INDULGED IN NON-GENUINE PURCHASE S TO SUPPRESS THE PROFITS AND PROCEEDED TO ADD THE ENTIRE AMOUNT OF SUCH PURC HASES, INSTEAD OF MAKING THE PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASE. AS STATED EARLIER WHEN THE SALES ARE GENUINE, IT IS NOT POSSIBLE TO SELL T HE GOODS WITHOUT MAKING ANY PURCHASES. IF THE PURCHASES ARE NOT MADE FROM THOSE PARTIES, THE APPELLANT MUST HAVE PURCHASED FROM SOME OTHER PARTIES. IN SUC H A SITUATION, ADDING THE ENTIRE AMOUNT OF PURCHASE TO THE TOTAL INCOME IS NO T CORRECT BECAUSE IT WILL GIVE A DISTORTED PICTURE OF THE PROFIT MARGIN AS STATED IN THE WRITTEN SUBMISSIONS BY THE APPELLANT. IN MY CONSIDERED OPINION, WHICH IS S UPPORTED BY SEVERAL JUDICIAL FORUMS, ESTIMATING THE PROFIT PERCENTAGE ON SUCH PU RCHASES IS THE CORRECT WAY TO BRING THE INCOME TO TAX. THUS, THE ISSUE WOULD B OIL DOWN TO FINDING OUT WHAT IS THE CORRECT ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SUCH UNKNOWN ENTITIE S. 9 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS 5.8 THE HON'BLE ITAT, AHMEDABAD 'C' BENCH IN THE CA SE OF VIJAY PROTEINS LTD. VS. ACIT 58 ITD 0428 HELD THAT IN SIMILAR CIRCUMSTA NCES, 25% OF THE PURCHASE PRICE ACCOUNTED THROUGH FICTITIOUS INVOICES HAS TO BE DISALLOWED. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF SANJAY GIL CAK ES V/S CIT 316 ITR 0274 DEALT WITH SIMILAR CASE WHERE SOME OF THE ALLEGED S UPPLIERS WHO HAD ISSUED BILLS TO THE ASSESSE WERE NOT GENUINE AS THEY WERE NOT TRACEABLE.THE GOODS MUST HAVE BEEN RECEIVED FROM OTHER PARTIES. THE LIK ELIHOOD OF THE PURCHASE PRICE OF THESE ALLEGED PURCHASES BEING INFLATED COU LD NOT BE RULED OUT AND THEREFORE THE HON'BLE HIGH COURT HAS UPHELD THE DEC ISION OF CIT(A) AND THE ITAT DISALLOWING 25% OF THE PAYMENTS MADE TO SUCH P ARTIES. THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. SIMIT P. SHETH 356 ITR 0451 HELD THAT ONCE THE SALE IS ACCEPTED BY THE AO, THE VERY BASIS OF PURCHASES COULD NOT BE QUESTIONED. NOT THE ENTIRE PURCHASE PRICE CO ULD BE DISALLOWED BUT ONLY THE PROFIT ELEMENT EMBEDDED I SUCH PURCHASES COULD BE ADDED OT THE INCOME OF THE ASSESSEE. THE ESTIMATION VARIES WITH THE NAT URE OF BUSINESS AND NO UNIFORM YARDSTICK COULD BE ADOPTED. 5.9 IN THIS REGARD, IT IS APT TO REFER CERTAIN DECI SIONS DEALING THE SIMILAR ISSUE. THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF B HOLANATH POLY FAB PVT.LTD. 355 ITR 290 (GUJ) WHERE THE HON'BLE COURT WAS BATTL ING WITH THE FINDING OF HON'BLE ITAT THAT PURCHASES WERE MADE FROM BOGUS PARTIES, NEVERT HELESS, THE PURCHASES THEMSELVES WERE NOT BOGUS AS THE ENTIRE QUANTITY OF OPENING STOCK, PURCHASES AND SALES WERE TALLYING AND HENCE, ONLY THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE SUBJECTED TO TAX. THE HON'BLE GUJAR AT HIGH COURT TAKING COGNIZANCE OF HE FACT HELD THAT WHETHER PURCHASES T HEMSELVES WERE BOGUS OR WHETHER PARTIES FROM WHOM SUCH PURCHASES WERE MADE WERE BOGUS, IS ESSENTIALLY A QUESTION OF FACT AND THE TRIBUNAL HAV ING EXAMINED THE EVIDENCE ON RECORD AND CONCLUDED THAT THE ASSESSEE DID PRODU CE CLOTH AND SELL FINISHED GOODS, THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHAS E WOULD NOT BE SUBJECTED TO TAX AND ONLY THE PROFIT ELEFRIENT EMBE DDED THEREIN TO BE TAXED. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE H IGH COURT ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY OIL CAKE IND. 31 6 ITR 274 (GUJ). 5.10 IN SANJAY OILCAKE INDUSTRIES V. COMMISSIONER O F INCOME-TAX [2009] 316 ITR 274 (GUJ), IT WAS HELD AS UNDER: ''THUS, IT IS APPARENT THAT BOTH THE COMMISSIONER ( APPEALS) AND THE TRIBUNAL HAS CONCURRENTLY ACCEPTED THE .FINDING OF THE ASSESSING OFFICER THAT THE APPARENT SELLERS WHO HAD ISSUED SA LE BILLS WERE NOT TRACEABLE. THAT GOODS WERE RECEIVED FROM THE PARTIE S OTHER THAN THE PERSONS WHO HAD ISSUED BILLS FOR SUCH GOODS. THUS, THE PURCHASES ARE SHOWN TO HAVE BEEN MADE BY MAKING PAYMENT THERE OF BY ACCOUNT PAYEE CHEQUES, THE CHEQUES HAVE BEEN DEPOSITED IN B ANK ACCOUNTS OSTENSIBLY IN THE NAME OF//IC AP/)AREFL( SELLERS, T HEREAFTER THE EN/IRE AMOUNTS HAVE BEEN WITHDRAWN BY BEARER CHEQUES AND T HERE IS NO TRACE OR IDEM'IIY OF IHE PERSON WITHDRAWING THE AMO UNT FROM THE HUNK ACCOUNTS. IN THE LIGHT OF THE AFORESAID NATURE OF E VIDENCE IT IS NOT POSSIBLE TO RECORD A DIF,KREMIT CONCLUSION, DFLRENI TROMN THE ONE RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIB UNAL 10 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS CONCURRENTLY HOLDING THAT THE APPARENT SELLERS WERE NOT GENUINE, OR WERE ACTING AS CONDUIT BETWEEN THE ASSESSEE-FIRM AN D THE ACTUAL SELLERS OF THE RAW MATERIALS. BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE, THEREFORE, COME TO THE CONCLUSIO N THAT IN SUCH CIRCUMSTANCES, THE LIKELIHOOD OF THE PURCHASE PRICE BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DIS LODGE SUCH FINDING. THE ISSUE IS NOT WHETHER THE PURCHASE PRICE REFLECT ED IN THE HOOKS OF ACCOUNT MULCHES THE PURCHASE PRICE STATED TO HAVE B EEN PAID TO OTHER PERSONS. THE ISSUE IS WHETHER THE PURCHASE PRICE PA ID BY THE ASSESSEE IS REFLECTED AS RECEIPTS BY THE RECIPIENTS . THE ASSESSEE HAS, BY SET OF EVIDENCE AVAILABLE ON RECORD, MADE I T POSSIBLE JBR THE RECIPIENTS NOT BEING TRUCEAHLEF6R THE PURPOSE OF IN C/U/MY AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS. HENCE, THE ESTIMA TE MADE BY THE TWO APPELLATE AUTHORITIES DOES NOT WARRANT INTEMFRR ENCE. EVEN, OTHERWISE, WHETHER THE ESTIMATE SHOULD BE AT A PART ICULAR SUM OR AT A DIFFERENT SWN, CAN NEVER HE AN ISSUE OF LAW. 5.11 SIMILARLY, IN YET ANOTHER DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 3 85 (GUJ), HON'BLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE HAD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE, PURCHASES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE A.O. IN THAT CASE ADDED THE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT(A) HAVING FOU ND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABL E PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE ADDITION TO THE EXT ENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH C OURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIE S OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELE MENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME A ND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. IN SIMIT P SHETH'S CASE THE HONOURABLE HIGH COURT HAS ORDERED THE DISALLOWANCE AT 12.5% SINCE T HE VAT RATES ARE HIGHER (LO%) IN THE TYPE OF GOODS DEALT BY SIMIT P.SHETH, IRON & STEEL, (WHERE THE AVERAGE GP IDS 2.5%). IN THE CASE OF DIAMOND BUSINE SS, WHICH THE APPELLANT IS DEALING, THE VAT CHARGES ARE ONLY L%. THE TRIBUN AL FOR ARRIVING THE PROFIT EMBEDDED IN THE TRANSACTIONS 2.5% HELD AS UNDER: HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAV E BEEN INFORMED THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES LAX ETC. IT HAS ALSO BEEN INFORMED THAT IN THIS IND USTRY ABOUT 2.5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISIONS OF THE CO-ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTA NCES, WE HEREBY DIRECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUST AINED AT 12.5% OF THE PURCHASE FROM THOSE PARTIES. WITH THESE DIRECTI ONS, WE HEREBY DECIDE THE GROUNDS OF THE RIVAL PARTIES WHICH ARE P ARTLY ALLOWED.' 11 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS 5.12 TAKING INTO CONSIDERATION THE ABOVE DECISIONS, THE CORRECT WAY OF DEALING THE BOGUS PURCHASES ISSUE IS TO ESTIMATE THE PROFIT MARGIN ON SUCH PURCHASES AND NOT ADDING THE ENTIRE AMOUNT OF SUCH PURCHASES. IN VIEW OF THE SAME, THE ISSUE ARRIVED AT IS TO WHAT WOULD BE THE MARGIN, ON E CAN EXPECT WHILE BUYING THE MATERIAL FROM GREY MARKET INSTEAD OF NORMAL COU RSE OF BUSINESS FROM REGULAR DEALERS. TWO ASPECTS NEED TO BE TAKEN INTO CONSIDERATION IN SUCH CIRCUMSTANCES. FIRST, THESE DIAMONDS IN THE GREY MA RKET ARE ALWAYS CHEAPER THAN THE DIAMONDS SOURCED FROM THE GENUINE. THIS IS BECAUSE, THE GENUINE DEALER WOULD CHARGE HIS INCIDENTAL COST INCLUDING T HE WHOLE ADMINISTRATIVE COST WHILE SELLING THE DIAMOND IN THE MARKET WHEREAS THE PETTY DEALERS IN THE GREY MARKET DO NOT CARRY SUCH INCIDENTAL CHARGES ON SUCH SALES, WHEREIN THEY ARE ONLY LOOKING FOR A QUICK PROFIT. SECONDLY, THERE IS ALWAYS AN ELEMENT OF DISCOUNT IN THE CASE OF INSTANT CASH PURCHASE. 5.13 IN THE LIGHT OF THE ABOVE, ONE HAS TO SEE IN T HE PRESENT CASE, WHICH IS IN THE LINE OF TRADING IN DIAMONDS, WHAT IS THE CORREC T PROFIT ELEMENT EMBEDDED IN SUCH BOGUS PURCHASES. IN THE CASE OF DIAMOND TRADE, GENERALLY THE RATE OF VAT IS STATED TO BE CHARGED @ 1% ON THE PURCHASES M ADE FROM MUMBAI AND ON THE PURCHASES MADE UNDER FORM H NO VAT IS LEVI ED DUE TO EXPORT COMMITMENT AND PURCHASES MADE FROM SURAT ALSO THERE IS NO VAT LEVIED. COMING TO THE PROFIT MARGIN IN THE TRADE, THE TASK FORCE GROUP FOR DIAMOND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME, RECOMME NDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @2% OF TRADING ACTIVITY A ND 3% FOR MANUFACTURING ACTIVITY OR 2.5% ACROSS THE BOARD. IT IS ALSO ASCER TAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP B Y THE TP WING IS CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%.DU RING THE APPELLATE PROCEEDINGS, THE A.R. OF THE APPELLANT BROUGHT TO M Y NOTICE AND ALSO FURNISHED COPY OF ASSESSMENT ORDER FOR THE A.Y.2008-09, WHER EIN THE A.O. CONSIDERED THE SAME ISSUE AND ESTIMATED THE ADDITION 03% ON TO TAL NON-GENUINE PURCHASES. THE REASON GIVEN BY THE A.O. FOR ADOPTIN G SUCH PERCENTAGE IN THE ORDER IS AS UNDER:- AS THE ASSESSEE HAS DEMONSTRATED CORRESPONDING SAL E AGAINST THE PURCHASE FROM BHAWARLAL JAIN GROUP CONCERN AND WHER E, ON ONE HAND THE GENUINENESS OF THE PURCHASE PARTY IS DOUBT ED, BUT THE GENUINENESS OF PURCHASE ON A WHOLE CANNOT BE DOUBTE D, THE COURTS HAVE TAKEN A VIEW THAT ONLY THE PROFIT MARGIN EMBED DED IN SUCH A TRANSACTION COULD BE TAXED. THIS IS A FAIRLY ACCEPT ED PRINCIPLE AND THE SAME WOULD ALSO APPLY IN THIS CASE. HOWEVER, WH AT WOULD BE THE FAIR MARGINS IN SUCH TRANSACTION IS THE MOOT QUESTI ON. GIVEN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE, THE DISCUSSION AS NARRATED ABOVE, THE PROFIT MARGIN EMBEDDED IN THE T RANSACTION WITH THE IMPUGNED ENTRY IS TAKEN AT 3% OF THE VALUE OF T HE TRANSACTION AND THE SAID AMOUNT I.E. RS.60,018/- (3% OF RS.20,0 1,271/-) IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE A SSESSMENT YEAR UNDER CONSIDERATION. 5.14 IN VIEW OF THE SAME CONSIDERING THE PROFIT MAR GIN IN THIS SECTOR I.E. AROUND 2 TO 3 PERCENT AND THE TAXES SAVED IS AROUND 10/0 I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS SUSTAINE D TO THE EXTENT OF 3% OF THE PURCHASES MADE, AS THE PROFIT ELEMENT EMBEDDED IN S UCH PURCHASES FROM THE 12 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS THREE PARTIES BELONGING TO THE BHANWARLAL JAIN GROU P CONCERNS, THAT WILL MEET THE ENDS OF JUSTICE. IN VIEW OF THE SAME, I DIRECT THE AO TO RESTRICT THE ADDITION @3% OF THE PURCHASES MADE FROM M/S. LAXMI TRADING O F RS.9,21,96,965/-. 6. AGGRIEVED BY THE LD. CIT(A)S ORDER, THE REVENU E IS IN APPAL BEFORE US 7. THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ERR ED IN SCALED DOWN ESTIMATION OF PROFIT ON ALLEGED BOGUS PURCHASES TO 3% WITHOUT APP RECIATING THE FACT THAT THE AO HAS BROUGHT OUT CLEAR FACTS IN LIGHT OF INFORMATION REC EIVED FROM THE DGIT(INV.) AND SALES TAX DEPARTMENT, MAHARASHTRA, WITH REGARD TO BOGUS P URCHASES MADE BY THE ASSESSEE FROM THE DEALERS WITHOUT SUPPLY OF ACTUAL GOODS. TH E LD. DR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THE AS SESSEE COULD NOT PROVE GENUINENESS OF PURCHASES AND MERE FURNISHING CONFIRMATION LETTE R AND OTHER EVIDENCES IS NOT SUFFICIENT ENOUGH TO PROVE THE GENUINENESS OF THE T RANSACTIONS, MORE PARTICULARLY, WHEN INFORMATION GATHERED DURING THE COURSE OF ASSESSMEN T PROCEEDINGS CLEARLY ESTABLISHED THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF AC COMMODATION ENTRIES PROVIDED BY BHANWARLAL JAIN GROUP AND HIS ASSOCIATES. THE LD. D R FURTHER SUBMITTED THAT THE LD. CIT(A) FAILED TO CONSIDER THE RATIO LAID DOWN BY TH E HONBLE SUPREME COURT IN THE CASE OF N. K. PROTEINS LTD. VS DCIT IN SLP (CIVIL NO.769 OF 2017) DATED 16/01/2017, WHERE UNDER IDENTICAL CIRCUMSTANCES THE HONBLE SUPREME C OURT UPHELD ADDITIONS OF 100% ON BOGUS PURCHASES IN ABSENCE OF NECESSARY EVIDENCES. 8. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE LD. CIT(A) ALTHOUGH SCALED DOWN ESTIMATION OF PROFIT TO 3% FRO M 12.5%, BUT FAILED TO APPRECIATE THE 13 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS FACTS IN RIGHT PERSPECTIVE THAT BEFORE ESTIMATION O F INCOME, THE BOOKS OF ACCOUNTS SHOULD BE REJECTED U/S 145(3) OF THE ACT. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AO MADE ADDITIONS ONLY ON THE BASIS OF REPORT O F DGIT(INV.) WITHOUT CONSIDERING THE EVIDENCES FILED BY THE ASSESSEE INCLUDING CONFIRMAT ION AND AFFIDAVIT FROM THE PARTNER OF M/S LAXMI TRADING COMPANY, WHERE THEY HAVE DENIED A NY WRONG DOING AND ALSO FILED COMPLETE DETAILS OF PURCHASES. THE ASSESSEE HAS ALS O FILED QUANTITATIVE DETAILS OF GOODS TRADED ALONG WITH STATUTORY FORMS FOR IMPORT AND EX PORT. THE AO NEITHER POINTED OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT NOR MADE OUT A CASE OF SALES OUTSIDE BOOKS OF ACCOUNTS, THEREFORE NO ADVERSE INFERENCES COULD BE DRAWN WHEN THE ASSESSEE HAS DISCHARGED ITS INITIAL BURDEN BY FILING COMPLETE DE TAILS OF PURCHASES. IN THIS REGARD, ASSESSEE RELIED UPON VARIOUS JUDICIAL PRECEDENCE IN CLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S MOHAMMAD HAJI ADAM & CO. IN INCOME TAX APPEAL NO.1004 OF 2016, DATED 11/02/2019 . THE CASE S RELIED UPON BY THE ASSESSEE ARE AS UNDER:- I. JITENDRA M. KITAVAT (HUF) VS ITO (ITA NO.7047/MUM/2 016) II. JITENDRA M. KITAVAT VS ITO (ITA NO.7050/MUM/2016) III. INDO UNIQUE TRADING PVT. LTD. VS DCIT (ITA NO.6341/ MUM/2016) IV. ITO VS DEEPAK POPOTLAL GALA (ITA NO.5920/MUM/2013) V. ACIT VS G.V. SONS (ITA NO.2239/MUM/2012 & ITA NO.22 40/MUM/2012, ITA NO.2238/MUM/2012) VI. RAKESH KUMAR & CO. VS ACIT (ITA NO.2959/MUM/2014) VII. BABULAL C. BORANVAS VS ITO (2006) 282 ITR 251(BOM.) 14 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS VIII. CIT VS HI LUX AUTOMOTIVE P. LTD. (2009) 183 TAXMAN 260 (DEL.) IX. CIT VS NIKUNJ EXMIP ENTERPRISES PVT. LTD. (ITA NO.5 604 OF 2010) (BOM.) X. CIT VS M. K. BROTHERS (1987) 30 TAXMANN 547(GUJ.) 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO FACT THAT THE NAME OF CONCERNED PARTIES FROM WHICH THE ASSESS EE HAS PURCHASED DIAMONDS I.E. M/S LAXMI TRADING COMPANY IS BELONGS TO M/S BHANWAR LAL JAIN GROUP AND HIS ASSOCIATES. IT IS ALSO AN ADMITTED FACT THAT M/S BH ANWARLAL JAIN GROUP AND HIS ASSOCIATES HAVE CATEGORICALLY ADMITTED DURING THE COURSE OF SE ARCH IN THEIR CASES, IN ITS STATEMENT RECORDED U/S 132(4) OF THE ACT, THAT THEY HAVE INVO LVED IN PROVIDING ACCOMMODATION ENTRIES OF UNSECURED LOANS/SHARE APPLICATION MONEY AND PURCHASES TO VARIOUS BENEFICIARIES. IT IS ALSO AN ADMITTED FACT THAT THE REPORT OF DGIT(INV.) CLEARLY SUGGESTED THAT THE ASSESSEE IS ONE OF THE BENEFICIARIES OF AC COMMODATION ENTRIES OF PURCHASES FROM M/S LAXMI TRADING COMPANY. IN THE ABOVE FACTU AL BACKGROUND, IF YOU EXAMINE THE EVIDENCES FILED BY THE ASSESSEE INCLUDING COPIES OF PURCHASES BILLS, PURCHASE LEDGER, SALES LEDGER, STOCK REGISTER AND CONFIRMATIONS FROM M/S LAXMI TRADING COMPANY ALONG WITH AFFIDAVIT OF PARTNER OF M/S LAXMI TRADING COMP ANY, IT IS DIFFICULT TO ACCEPT THE FINDING OF THE AO THAT PURCHASES FROM M/S LAXMI TRA DING COMPANY IS BOGUS IN NATURE, WHICH IS NOT SUPPORTED BY NECESSARY EVIDENCES. IN F ACT, THE ASSESSEE HAS FILED COMPLETE SET OF DOCUMENTS IN RESPECT OF PURCHASES F ROM M/S LAXMI TRADING COMPANY INCLUDING CONFIRMATIONS FROM THE PARTIES. THE AO NE ITHER POINTED OUT ANY DISCREPANCIES 15 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS IN THE BOOKS OF ACCOUNT NOR MADE OUT A CASE OF SALE S OUTSIDE THE BOOKS OF ACCOUNTS. IN ABSENCE OF ANY INCORRECTNESS IN BOOKS OF ACCOUNT OR SALES OUTSIDE THE BOOKS, NO ADVERSE INFERENCE COULD BE DRAWN THAT PURCHASES FRO M THE ABOVE PARTIES AS BOGUS, ONLY FOR THE REASON THAT THE NAME OF THE PARTY IS APPEAR ED IN THE LIST OF DGIT(INV.) AND ALSO THE PARTY HAS ACCEPTED THAT HE IS INVOLVED IN THE P ROVIDING ACCOMMODATION ENTRIES OF PURCHASES TO VARIOUS PARTIES. AT THE SAME TIME, IT IS DIFFICULT TO ACCEPT THE ARGUMENT OF THE ASSESSEE THAT PURCHASE FROM M/S LAXMI TRADING C OMPANY IS FULLY SUPPORTED BY NECESSARY EVIDENCES. MERE FURNISHING PURCHASE BILL S AND OTHER EVIDENCES IS NOT SUFFICIENT ENOUGH TO PROVE GENUINENESS OF THE TRANS ACTIONS, WHEN THE PARTY HIMSELF HAD ADMITTED IN ITS STATEMENT RECORDED U/S 132(4) THAT HE IS INVOLVED IN PROVIDING ACCOMMODATION ENTRIES OF PURCHASES TO VARIOUS PARTI ES. IN THIS CASE, IT IS ALSO AN ADMITTED FACT THAT THE CONTENTS OF DGIT(INV.) REPOR T AND THE INFORMATION COLLECTED DURING THE COURSE OF SEARCH IN THE CASE OF M/S BHANWARLAL JAIN GROUP IS MATCHED. ALTHOUGH, THE ASSESSEE TRIED TO ARGUE THAT THE NAME OF THE PA RTY IS NOT SPECIFICALLY APPEARED IN THE LIST OF BHANWARLAL JAIN GROUP AND ITS ASSOCIATES, O N PERUSAL OF FACTS AVAILABLE ON RECORD, WE FIND THAT M/S LAXMI TRADING COMPANY IS VERY MUCH AVAILABLE IN THE LIST OF 70 ODD COMPANIES OPERATED BY M/S BHANWARLAL JAIN AND ITS A SSOCIATES. UNDER THESE FACTS, IT IS DIFFICULT TO ACCEPT THE ARGUMENT OF THE ASSESSEE TH AT IT HAS DISCHARGED ITS ONUS OF PROVING PURCHASES IN THE BACK DROP OF CLEAR FINDING OF THE AO WHICH IS SUPPORTED BY THE DGIT(INV.) REPORT. 16 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS 10. HAVING SAID SO, LET US EXAMINE WHAT IS TO BE D ONE IN CASES WHERE EITHER PARTY FAIL TO CONCLUSIVELY PROVE THE PURCHASES IN T HEIR FAVOURS. THE LD. CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RECORDED CATEGOR ICAL FINDING IN THE LIGHT OF DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE CIT VS SIMIT P. SETH (356 ITR 0451)(GUJ.), WHERE THE COURT OBSERVED THAT WHEN THE PARTIES ARE FAILED TO PROVE THE PURCHASES WITH NECESSARY EVIDENCES, OBVIOUSLY A CONCLUSION IS DRAW N THAT THE PURCHASES ARE MADE FROM GREY MARKET IN ORDER TO SAVE TAX AND REDUCE TH E COST, BUT OBTAINED BILLS FROM THE PARTIES WHO ARE INVOLVED IN PROVIDING ACCOMMODATION ENTRIES. THE LD. CIT(A) TAKING NOTE OF ABOVE FACTS AND ALSO CONSIDERING THE LEVEL OF PROFIT INVOLVED IN DIAMOND TRADING INDUSTRIES ON THE BASIS OF BAP REPORT COME TO THE C ONCLUSION THAT THE ASSESSEE MIGHT HAVE SAVED 1% TAX BY MAKING PURCHASES FROM GRAY MAR KET AND ALSO SAVED 2 TO 3% PROFIT. THEREFORE, TAKING NOTE OF ABOVE FACTS, SCAL ED DOWN ESTIMATION OF NET PROFIT FROM 12.5% TO 3%. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE LD. CIT(A) WHILE REDUCING 3% PROFIT ON ALLEGED BOGUS PURCHASES FROM M/S LAXMI TRADING COMPANY. 11. COMING BACK TO THE CASE LAWS RELIED UPON BY THE ASSESSEE. THE ASSESSEE HAS RELIED VARIOUS CASE LAWS INCLUDING THE CASE OF HON BLE BOMBAY HIGH COURT IN THE PR. CIT VS M/S MOHAMMAD HAJI ADAM & CO. IN INCOME TAX APPEA L NO. 1004 OF 2016 DATED 11/02/2019. WE FIND THAT HONBLE JURISDICTIONAL HIG H COURT AFTER CONSIDERING RELEVANT FACTS HELD THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES 17 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMIT ED TO THE EXTENT OF GP RATE ON PURCHASE AT THE SAME RATE OF OTHER GENUINE PURCHASES. IN SO FAR AS, OTHER CASES RELIED UPON BY THE ASSESSEE, WHERE THE TRIBUNAL HAS DELETED ADDITI ON MADE TOWARDS BOGUS PURCHASES, WE FIND THAT ALTHOUGH THERE ARE CERTAIN CASE LAWS I N FAVOUR OF THE ASSESSEE, BUT IN MAJORITY OF CASES, THE COORDINATE BENCH OF MUMBAI T RIBUNAL, HAS TAKEN A CONSISTENT VIEW BY FOLLOWING THE DECISION OF HONBLE GUJARAT H IGH COURT IN THE CASE OF CIT VS P. SIMIT SHETH (SUPRA) AND HAS DIRECTED THE AO TO ESTI MATE ONLY PROFIT ELEMENT EMBEDDED IN BOGUS PURCHASES DEPENDING UPON FACTS OF EACH CAS E. IN THIS CASE, SINCE ASSESSEE IS IN THE BUSINESS OF TRADING IN DIAMONDS, THE LD. CIT (A) AFTER CONSIDERING THE AMOUNT OF PROFIT INVOLVED IN DIAMOND TRADING INDUSTRIES AND A LSO TAKEN SUPPORT FROM BAP REPORT, HAS ESTIMATED 3% PROFIT ON ALLEGED BOGUS PURCHASES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE LD. CIT(A) AND HENCE, WE ARE INCLINED TO UPHELD THE FINDINGS OF THE LD. CIT(A) A ND DISMISSED THE APPEAL FILED BY THE REVENUE. 12. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST ORDER OF THE LD. CIT(A) AND CHALLENGED THE FINDINGS RECORDED BY THE LD. CIT (A) FOR ESTIMATING 3% PROFIT ON ALLEGED BOGUS PURCHASES. SINCE, WE HAVE ALREADY UPH ELD THE FINDINGS OF THE LD. CIT(A) IN REVENUES APPEAL IN PRECEDING PARAGRAPHS, THE FI NDING GIVEN BY US IN REVENUES APPEAL SHALL MUTATIS MUTANDIS APPLY TO THE CROSS OB JECTION FILED BY THE ASSESSEE. 18 ITA NO.4146/MUM/2017 & C.O. NO.153/MUM/2018 M/S RADIANT GEMS THEREFORE, FOR THE DETAILED REASONS GIVEN IN PRECED ING PARAGRAPHS IN REVENUES APPEAL, WE DISMISSED THE CROSS OBJECTION FILED BY THE ASSES SEE. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/05/201 9. SD/- SD/- ( SANDEEP GOSAIN ) (G. MANJUNATHA) #$ /JUDICIAL MEMBER %$ / ACCOUNTANT MEMBER $ /MUMBAI; ' DATED : 17/05/2019 F{X~{T? F{X~{T? F{X~{T? F{X~{T? P.S / /. . . !'&#'()*)+' / COPY OF THE ORDER FORWARDED TO : 1. ( )* / THE APPELLANT (RESPECTIVE ASSESSEE) 2. +,)* / THE RESPONDENT. 3. -- $ .# ( ( ) / THE CIT, MUMBAI. 4. -- $ .# / CIT(A)- , MUMBAI, 5. 01 +#2 , -((2 3 , $ / DR, ITAT, MUMBAI 6. !4 / GUARD FILE. !' / BY ORDER, / (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI