SIDDHANT DIAMONDS PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE 5(3)(1), MUMBAI

ITA 1102/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5412 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2008-2009
• Appeal Filed On: 26-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: MRUGAKSHI K JOSHI
• Keywords: Reopening of assessment; Bogus purchase; Accommodation entries

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI C.N. PRASAD , JM & SHRI M.BALAGANESH, AM ITA NO. 1102 /MUM/201 8 ( ASSESSMENT YEAR : 2008 - 09) M/S. SIDDHANT DIAMONDS PVT. LTD., FE9011/FC9031 BLOCK, BHARAT DIAMOND BOURSE BANDRA MUM BAI 400 051 VS. DY. CIT - 5(3)(1), ROOM NO.583, 5 TH FLOOR AAYAKAR BHAVAN MUMBAI 400 020 PAN/GIR NO. AAECS8548Q (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY MS. MRUGAKSHI K. JOSHI REVENUE BY SHRI V. SREEKAR DATE OF HEARING 03 / 02 /2020 DATE OF P RONOUNCEMENT 19 / 02 /2020 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 1102/MUM/2018 FOR A.Y. 2008 - 09 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 10, MUMBAI IN APPEAL NO S . CIT(A) - 10/DC - 5(3)(1)/64/ 16 - 17 & CIT(A) - 10/DC - 5(3)(1)/65/16 - 17 DATED 21/11/2017 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 04/03/2016 BY THE LD. DY. COMMISSIONER OF INCOME TA X CIRCLE 5(3)(1), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NO. 1102/MUM/2018 M/S. SIDDHANT DIAMONDS P. LTD. 2 2. THE GROUND NO.1 RAISED BY THE ASSESSEE IS CHALLENGING THE VALIDITY OF REOPENING U/S.147 OF THE ACT. IT WAS STATED TO BE NOT PRESSED BY THE LD. AR AT THE TIME OF HEARING. THE SAME IS TAKEN A S A STATEMENT MADE FROM THE BAR AND ACCORDINGLY, THE GROUND NO.1 RAISED ON THE VALIDITY OF REOPENING OF ASSESSMENT IS DISMISSED AS NOT PRESSED. 3. THE GROUND NO.2 IS WITH REGARD TO CHALLENGING THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF PRO FIT ELEMENT ON ALLEGED BOGUS PURCHASES @8% MADE FROM M/S A2 JEWELS. 3.1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORT / EXPORT OF DIAMONDS, MANUFACTU RER AND EXPORTER OF DIAMOND STUDDED JEWELLERY AND PRECIOUS AND SEMI - PRECIOUS STONES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE TOTAL PURCHASES OF RS.7,37,11,824/ - AND OUT OF WHICH , THE LD. AO HAD CONSIDERED PURCHASE OF RS.44,75,494/ - MADE BY THE ASSESSEE FROM M/S. A2 JEWELS AS BOGUS BASED ON THE INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEPARTMENT AND DGIT INVESTIGATION WING OF INCOME TAX DEPARTMENT THAT THE SAID PARTY WAS ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION BILLS AND THAT NO ACTUAL DELIVERY OF GOODS HAD HAPPENED FROM HIS SIDE. IT IS NOT IN DISPUTE THAT THE SAID GOODS PURCHASED BY THE ASSESSEE HAD BEEN DULY CONSUMED / SOLD IN THE COURSE OF ITS BUSINESS. THE LD. AO CONCLUDED THAT THE GOODS HAD BEEN PURCHASED BY THE ASSES SEE IN THE GREY MARKET IN ORDER TO HAVE SAVING TOWARDS VAT AND OTHER INCIDENTAL LEVIES ETC AND ACCORDINGLY PROCEEDED TO TAX ONLY THE PROFIT ELEMENT EMBEDDED ON SUCH PURCHASES. WE FIND THAT THE LD. AO HAD ADOPTED A PROFIT PERCENTAGE AT 12.5% OF RS.44,75,494 / - AND ARRIVED AT THE DISALLOWANCE OF RS.5,59,437/ - AND COMPLETED THE ASSESSMENT. THIS ITA NO. 1102/MUM/2018 M/S. SIDDHANT DIAMONDS P. LTD. 3 PROFIT PERCENTAGE WAS REDUCED BY THE LD. CIT(A) TO 8% AFTER ENDORSING ALL THE OTHER OBSERVATIONS MADE BY THE LD. AO. 3.2. AT THE TIME OF HEARING BEFORE US, THE LD DR W AS NOT ABLE TO POINT OUT WHETHER ANY APPEAL WAS PREFERRED BY THE REVENUE BEFORE US AGAINST THE ORDER OF THE LD CIT ( A ) . WE FIND THAT THIS TRIBUNAL IN THE CASE OF DEV DIAMONDS VS. ACIT IN ITA NO.1439 1442/MUM/2016 DATED 08/08/2019 HAD HELD THAT THE ADOPTIO N OF PROFIT PERCENTAGE @3% ON NON - GENUINE PURCHASES WOULD BE JUST AND FAIR AFTER TAKING INTO ACCOUNT, THE REPRESENTATION OF THE TASK GROUP CONSTITUTED BY THE D EPARTMENT OF COMMERCE WHEREIN THE MARGIN IN DIAMOND INDUSTRY IN MANUFACTURING SECTOR AND TRADING SECTOR WAS DULY MENTIONED. THE RELEVANT OPERATIVE PORTION OF THE SAID JUDGMENT IS AS UNDER: - 12. IT IS THE FINDING OF THE LD. CIT(A) THAT WHAT ADVANTAGE THE ASSESSEE COULD HAVE GOT ON PURCHASING THE DIAMONDS IN GRAY MARKET WAS ONLY 1% BEING THE VAT, AS T HE ASSESSEE MADE PURCHASES IN THE GREY MARKET WITHOUT PAYING VAT, BUT OBTAINED ONLY THE ACCOMMODATION ENTRIES. FURTHER AS PER THE REPORT OF THE TASK GROUP CONSTITUTED BY THE DEPARTMENT OF COMMERCE THE MARGIN IN TRADING IN THE DIAMOND INDUSTRY WAS ONLY 1 TO 3%. THEREFORE, TAKING THE AVERAGE OF THE INDUSTRY AVERAGE I.E. 2% AND THE ADVANTAGE WHICH THE ASSESSEE GOT FROM PURCHASES FROM THE GRAY MARKET I.E. 1% TOWARDS VAT, IN OUR VIEW AT BEST THE DISALLOWANCE CAN BE MADE ONLY AT 3%. THEREFORE, TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE ARE OF THE VIEW THAT THE PROFIT ELEMENT MARGIN EMBEDDED IN THESE PURCHASE TRANSACTIONS SHOULD BE TAKEN @3% FOR ALL THESE ASSESSMENT YEARS. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE P ROFIT ELEMENT @3% OF THE PURCHASES TREATED AS NON - GENUINE AND RE - COMPUTE THE INCOME OF THE ASSESSEE FOR ALL THESE ASSESSMENT YEARS. 13. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 3.3. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE LD. AO TO DETERMINE THE PROFIT PERCENTAGE AT 3% ON THE NON - GENUINE PURCHASES. ITA NO. 1102/MUM/2018 M/S. SIDDHANT DIAMONDS P. LTD. 4 ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE ON MERITS ARE PARTLY ALLOWED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N THIS 19 / 02 /2020 SD/ - ( C.N. PRASAD ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 19 / 02 / 2020 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//