Krunal Enterprise, Surat V. The Dy.CIT., Circle-3(1), Surat

CO 182/AHD/2015

• Counselvise Citation: [2018] 117 COUNSELVISE.COM (IT) 2435 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR SINGH
• Keywords: Bogus purchase; Income from undisclosed sources; Principle of natural justice; Set aside
• Section: 37(1); 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.2262/AHD/2015/SRT & C.O NO. 182/AHD/2015/SRT / ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), SURAT. VS. M/S. KRUNAL ENTERPRISES, 7/2356, HITESH APARTMENTS, RAMPURA MAIN ROAD, OPP: POLICE LINES, RAMPURA, SURAT. [PAN: AACFK 9318F] ( ' / APPELLANT) ( #$' /RESPONDENT/CROSS OBJECTOR) / ASSESSEE BY : SHRI KIRAN K. SHAH, C.A /REVENUE BY : SHRI ARVIND KUMAR SINGH, SR. DR /DATE OF HEARING : 21-06-2018 / DATE OF PRONOUNCEMENT : 20-08-2018 / ORDER PER C.M.GARG, JUDICIAL MEMBER: THIS APPEAL HAS BEEN FILED BY THE REVENUE AND THE CROSS OBJECTION (C.O) FILED BY THE ASSESSEE DIRECTED AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-3, SURAT (CIT(A) FOR SHORT) DATED 14.05.2015 FOR THE ASSESSMENT YEAR (A.Y) 2007-08. 2. THE GROUNDS RAISED BY THE REVENUE IN ITA NO.2262 /AHD/2015/SRT READ AS FOLLOWS: 2 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.2,18,80,740/- MADE ON ACCOUNT OF BOGUS PURCHASES TO RS. 54,70,185 /-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN APPLYING THE RATIO IN THE CA SE OF M/S.VIJAY PROTEINS LTD.(REPORTED IN 58 ITD 428) AS THE FACTS OF INSTANT CASE ARE DIFFERENT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS NOT APPRECIATED THE FACTS THAT THE RE LEVANT PARTIES VIZ. A) M/S.RUTUJA GEMS B) M/S.HIREN GEMS C) M/S.DINESH DIAMOND D) M/S.GAURANG ENTERPRISES HAVE FAILED TO PRODUCE THE RELEVANT DETAILS IN RESPECT OF PURCHASE PARTIES SUCH AS COPY OF BALA NCE SHEET, BOOKS OF ACCOUNTS, NAME AND ADDRESS OF ANGADIAS AND COPY OF JHANGAD ETC. IN REPOSE TO THE SUMMONS ISSUED U/S.13 1 OF THE ACT. FURTHER SUMMONS U/S. 131 OF THE ACT COULD NOT BE SE RVED ON M/S.RUTUJA GEMS AS NO SUCH PERSON LIVED AS PER THE ADDRESS GIVEN. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A) SURAT MAY BE SET ASIDE AND THAT OF THE AO'S, MAY, BE RESTORED. 2. THE GROUNDS RAISED BY THE ASSESSEE IN C.O NO.182 /AHD/2015/SRT READ AS FOLLOWS: 1. THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING T HE ADDITION OF RS. 36,16,507/- (35,00,000/- U/S. 68 AND RS. 1,16,507/- U/S. 37(1) OF THE ACT) ON THE BASE OF STATEMENT OF BHANWARLAL JAIN WH O IS THIRD PARTY THEREOF. 2. THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING A DDITION OF RS. 54,70,185/- (EFFECTIVE ADDITION OF RS. 19,70,105/-) ON ACCOUNT OF DISALLOWANCE OUT OF PURCHASES FROM CERTAIN PARTIES APPLYING THE DECISION OF VIJAY PROTEIN LTD. 3. THE LD. ASSESSEES REPRESENTATIVE (AR) SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS CROSS OBJECTION NO. 1 AS THE SAME IS DISMISSED AS NOT PRESSED. THE ISSUE INVOLVED IN TH E CROSS OBJECTION NO.2 OF THE ASSESSEE AND GROUNDS OF APPEAL OF REVENUE AR E RELATED TO THE SOLE ISSUE ADDITION ON ACCOUNT OF BOGUS PURCHASES THEREF ORE, ON THE REQUEST OF 3 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES BOTH THE PARTIES, WE ARE TAKING UP THE SAME TOGETHE R. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CAREFULLY PERUSED THE R ELEVANT MATERIAL PLACED ON THE RECORD OF THE TRIBUNAL. 4. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITT ED THAT THE LD.CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.2,18,80,740/- MADE ON ACCOUNT OF BOGUS PURCHASES TO RS. 54,70,185/- AS THE RATIO IN THE CASE OF M/S. VIJAY PROTEINS LTD. REPORTED IN 58 ITD 428 AS THE FACTS OF INSTANT CASE ARE DIFFERENT. THE LD. DR FURTHER SUBMITTED TH AT THE LD.CIT(A) HAS NOT APPRECIATED THE FACT THAT THE RELEVANT PARTIES VIZ. A) M/S.RUTUJA GEMS B) M/S.HIREN GEMS C) M/S.DINESH DIAMOND D) M/S.GAURANG ENTERPRISES HAVE FAILED TO PRODUCE THE RELEVANT DETAILS IN RESP ECT OF PURCHASE PARTIES SUCH AS COPY OF BALANCE SHEET, BOOKS OF ACCOUNTS, N AME AND ADDRESS OF ANGADIAS AND COPY OF JHANGAD ETC. IN REPOSE TO THE SUMMONS ISSUED U/S.131 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). FURTHER SUMMONS U/S. 131 OF THE ACT COULD NOT BE SERVED ON M/S. RUTUJA GEMS AS NO SUCH PERSON LIVED AS PER THE ADDRESS GIVEN. FIN ALLY THE LD.DR CONTENDED THAT THE LD.CIT(A) OUGHT TO HAVE UPHELD T HE ORDER OF THE AO. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A ) SURAT MAY BE SET ASIDE AND THAT OF THE AO'S, MAY, BE RESTORED. 5. REPLYING TO THE ABOVE, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER (AO) DISMISSED EXPLANATION OF THE ASSESSEE ON FLIMSY GROUND THAT 4 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES WRONGLY HELD THAT THE ASSESSEE HAS ENTERED INTO TRA NSACTIONS WITH THE ALLEGED FOUR PARTIES AND THUS, THE TOTAL AMOUNT OF RS. 2,18,80,740/- WAS HELD TO BE BOGUS AND ADDED TO THE INCOME OF THE ASS ESSEE WITHOUT ANY JUSTIFIED AND REASONABLE REASON. PRESSING INTO SER VICE CROSS OBJECTION NO.2 OF THE ASSESSEE, THE LD. DR SUBMITTED THAT THE LD. CIT(A) AGREED TO THE CONTENTION AND EXPLANATION OF THE ASSESSEE BUT GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 19,70,105/- ON ACCOU NT OF DISALLOWANCE OUT OF PURCHASES FROM CERTAIN PARTIES APPLYING THE DECI SION OF VIJAY PROTEINS LTD. (SUPRA). THE LD. AR FURTHER SUBMITTED THAT 100% AM OUNT OF SUCH PURCHASES OUGHT NOT TO BE ADDED BECAUSE THERE IS CO RRESPONDING SALES/EXPORTS OF DIAMONDS IN THE DAY TO DAY QUANTIT Y ACCOUNT. THE APPELLANT STRONGLY URGES THAT THERE WAS ACTUAL RECE IPT OF DIAMONDS BECAUSE CORRESPONDING SALES/EXPORT AND THE CLOSING STOCK HAVE BEEN ACCEPTED. THE APPELLANT, URGES THAT ADDITION MAY B E RESTRICTED TO 5% OF SUCH PURCHASES RELYING UPON THE FOLLOWING DECISIONS ; A) DELUXE DIAMONDS VS. ITO ITA NO.1396/AHD./2017 AND MAYANK DIAMONDS ( P.) LTD. VS. ITO IN TAX APPEAL NO.200 OF 2003 (GUJ. HC). 6. THE LD. DR ALSO SUBMITTED THAT THE APPELLANT REL IES ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KISHANCHAND CHELARAM VS. CIT 1125 ITR 713 (SC) , THE APPELLANT ALSO RELIES ON THE LATEST DECISION OF THE APEX COURT IN THE CASE OF CIT VS. SUNITA DHADDA IN TAX APPEAL 5 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES NO.9432/2018 ON ISSUE OF CROSS EXAMINATION AND FAILURE OF NATUR AL JUSTICE. THE VIOLATION OF NATURAL JUSTICE RENDERS THE ASSESS MENT VOID AND THE DEPARTMENT CANNOT GIVE A SECOND CHANCE. THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF ANDAMAN TIMBER INDUSTRIES VS. CIT 62 TAXMAN.COM 3 ( SC) AND SUBMITTED THAT WHEN THE AO HAS NOT ALLOWED TO CROSS EXAMINATI ON OF THE WITNESS TO THE ASSESSEE WHOSE STATEMENT HAS BEEN TAKEN AS BASI S FOR MAKING ADDITION THEN, IT IS A SERIOUS LAW AND ORDER AMOUNT S TO NULLITY AS HAVING BEEN PASSED IN VIOLATION OF PRINCIPLES OF NATURAL J USTICE. THE LD. AR SUBMITTED THAT NO STATEMENT OF ANY PARTY WAS EVER C ONFRONTED TO THE ASSESSEE AND NO CROSS EXAMINATION WAS ALLOWED THERE FORE, ENTIRE ADDITION IS BAD IN LAW AND NOT SUSTAINABLE. 7. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, WE ARE OF THE VIEW THAT THE AO MADE ADDITION ON ACCOUNT OF ALLEGE D NON GENUINE PURCHASES FROM FOUR PARTIES AMOUNTING TO RS. 2,18,8 0,740/- ON THE BASIS OF REPORT OF DDI INVESTIGATION, MUMBAI AFTER SURVEY /SEARCH PROCEEDINGS IN THE GROUP OF BHANWARLAL JAIN & ASSOCIATED CONCERN. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE FILED COPIES OF THE BILLS PROOF REGARDING PAYMENT BY ACCOUNT PAYEE CHEQUES AND ALSO THE IT RECORDS AND CONFIRMATION OF THE PARTIES FROM WHOM THE DIAMO NDS WERE PURCHASED ALONG WITH DAY TO DAY QUANTITY ACCOUNTS OF ROUGH/PO LISHED DIAMONDS AND 6 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES THERE WAS RECEIPT OF DIAMONDS IN THE QUANTITY REGIS TER FROM THE PARTIES FROM WHOM THEY WERE PURCHASES. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE APPELLANT THAT IF THE CORRESPONDI NG SALES/STOCK IS ACCEPTED, THE PURCHASES OUGHT TO BE ACCEPTED BECAUS E THERE CANNOT BE SALES/EXPORTS UNLESS THERE IS PURCHASES. THE LD. DR HAS NOT CONTROVERTED THE FACT THAT THE AO MADE BASIS THE REPORT OF INVES TIGATION WING, MUMBAI AND FROM PARA 7.2 OF THE ASSESSMENT ORDER, IT IS CL EAR THAT THE ASSESSEE VIDE SUBMISSION DATED 18.03.2015 ASKED THE COPY OF THE STATEMENT AND EVIDENCE TAKING BASIS FOR ALLEGING TRANSACTIONS OF PURCHASES AS BOGUS AND TO CROSS EXAMINE THE WITNESS. FROM THE SUBSEQUENT PART OF ASSESSMENT ORDER, IT IS CLEAR THAT THE AO DID NOT PROVIDE COPY OF THE STATEMENT OF SHRI BHANWARLALA JAIN AND HIS ASSOCIATES AND DID NOT PRO VIDE OPPORTUNITY TO CROSS EXAMINE THESE WITNESSES, WHOSE STATEMENT HAS BEEN TAKEN AS BASIS FOR MAKING ADDITION ON ACCOUNT OF BOGUS PURCH ASES. HENCE, AS PER RATIO OF THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF ANDAMAN TIMBER INDUSTRIES (SUPRA) THE ACTION OF THE AO IS VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE. 8. FROM CAREFUL READING OF FIRST APPELLATE ORDER, W E CLEARLY OBSERVE THAT THE LD. CIT(A) NOT AGREED TO THE CONTENTION OF THE ASSESSEE AND HE CONFIRMED THE ADDITION MADE BY THE AO I.E., 25% OF ALLEGED PURCHASES AND AFTER GIVING ADJUSTMENT/RELIEF OF RS. 35,00,000 /- ON ACCOUNT OF 7 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES UNACCOUNTED INCOME GENERATED BY INFLATION OF PURCHA SES THE REMAINING AMOUNT WAS TREATED AS ADDITION TO THE INCOME OF THE ASSESSEE. 9. ON CAREFUL CONSIDERATION OF ABOVE FACTS AND CIRC UMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS IN THE MANUFACTURI NG/TRADING OF POLISHED DIAMONDS OUT OF ROUGH DIAMONDS AND CORRESPONDING SA LES HAVE ALSO BEEN MADE BY THE ASSESSEE AND NO SALES COULD HAVE B EEN MADE WITHOUT PURCHASES. IT IS NOT A CASE OF UNACCOUNTED SALES A ND PURCHASES OUT OF BOOKS OF ACCOUNTS AND ALL PURCHASES AND SALES ALONG WITH CORRESPONDING EXPENSES HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS . ENTIRE AMOUNT OF PURCHASES CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE PERTAINING TO THE ALLEGED FOUR PARTIES. AT THIS JU NCTURE, WE RESPECTFULLY TAKE COGNIZANCE OF THE DECISION OF HONBLE JURISDICTIONA L HIGH COURT OF GUJARAT IN THE CASE OF MAYANK DIAMOND (SUPRA) AND ORDER OF ITAT, AHMEDABAD IN THE CASE OF DELUXE DIAMOND (SUPRA). IN THE CASE OF MAYANK DIAMOND (SUPRA), THEIR LORDSHIP SPEAKING FOR THE JURISDICTI ONAL HIGH COURT HELD THAT IN THE LINE OF BUSINESS OF MANUFACTURING/TRADING OF POLISHED DIAMOND OUT OF ROUGH DIAMONDS PROFIT IS RANGING BETWEEN 3% TO 7% M AY BE APPLIED. IT IS NOT A CASE OF THE AO THAT ANY PART OF AMOUNT PAID B Y THE ASSESSEE AGAINST ALLEGED PURCHASES HAVE RECEIVED BACK BY THE ASSESSEE OR THE SAME WAS NOT PAID TO THE RESPECTIVE SELLERS THEREFO RE, RATIO OF THE DECISION OF VIJAY PROTEINS LTD. (SUPRA) CANNOT BE APPLIED TO THE PRESENT CASE IN 8 ITA NO.2262/AHD/2015/SRT & C.O NO.182/AHD/2015/SRT (A.Y: 2007-08) M/S. KRUNAL ENTERPRISES FAVOUR OF THE REVENUE FOR MAKING DISALLOWANCE OF 25 % OF ALLEGED BOGUS PURCHASES. 10. IN OUR CONSIDERED OPINION AND LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS WELL AS RATIO OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF MAYANK DIAMOND (SUPRA), WE FIND IT APPROPRIATE TO RESTRICT THE DI SALLOWANCE @ 5% OF TOTAL BOGUS PURCHASES. CONSEQUENTLY, GROUNDS OF REVENUE ARE DISMISSED AND THE CROSS OBJECTION NO.2 OF THE ASSES SEE IS PARTLY ALLOWED AND AO IS DIRECTED TO RE-COMPUTE THE DISALLOWANCE O N ACCOUNT OF BOGUS PURCHASES. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE C.O OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 0 TH AUGUST, 2018. / SURAT ; DATED : 20 TH AUGUST, 2018 EDN # & / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. $ ( ) / THE CIT(A)- 3, SURAT; 4. PRL. CIT, SURAT; 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // * / ASSISTANT REGISTRAR , / ITAT, SURAT SD/- SD/- ( ) ( O.P.MEENA ) / ACCOUNTANT MEMBER ( ) (C.M.GARG) /JUDICIAL MEMBER