M/s. Delux Diamonds, Surat V. The Income Tax Officer, Ward-1(3)(1), Surat

ITA 1396/AHD/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2091 (ITAT-SURAT)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D D YADAV
• Assessee Lawyers: MAYUR KISANADWALA
• Keywords: Bogus purchase; Business income; Search and seizure; Principle of natural justice; Opportunity of cross examination; Cost of acquisition; Fair market value; Accommodation entries
• Section: 148; 234B

Judgement Text

DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 1 OF 15 INCOM TAX APPELLATE TRIBUNAL SURAT-BENCH-SURAT BEFORE SHRI C .M. GARG, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. NO.1396/AHD/2017: ASSESSMENT YEAR:2007-08 M/S. DELUXE DIAMOND S, U-49, POOJA ABHISHEK, OPP. LAL BUNGALOW ATHWALINES SURAT 395007 PAN: AABFD 8354M V S . INCOME TAX OFFICER, WARD 1(3)(1) SURAT APPELLANT RESPONDENT ASSESSEE BY SHRI MAYUR KISNADWALA CA SHRI VINAY SINHA ADVOCATE REVENUE BY SHRI D. D. YADAV, SR. D.R. DATE OF HEARING 13.02.2018 DATE OF PRONOUNCEMENT 11 . 04.2018 ORDER PER O. P. MEENA, AM 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED OF COMMISSIONER OF INCOME TAX (APPEALS)-2, SURAT (IN SHORT THE CIT (A)) DATED 06.04.2017 PERTAINING TO ASSESSMENT YEAR 2007-08, WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 27.03.2015 PASSED BY THE ITO 1(3) (1) SURAT (IN SHORT THE AO ) UNDER SECTION 143 (3) R.W.S.147 OF INCOME TAX ACT,1961 ( IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS UNDER: (1) THAT ON FACTS IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF UNVERIFIABLE PURCHASES, WHICH IS MADE IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE BY NOT DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 2 OF 15 SUPPLYING THE COPIES OF REPORT / MATERIALS RELIED ON, NOR GRANTING OPPORTUNITY TO CROSS EXAMINE THE CONCERNED PERSONS WHOSE STATEMENTS ARE RELIED ON BY THE AO TO MAKE THE ADDITION, INSPITE OF THE SPECIFIC PRAYER MADE BY THE APPELLANT. (2) THAT ON FACTS IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS. 1,41,28,605/- MADE ON ACCOUNT OF ALLEGED BOGUS PURCHASES. (3) THAT ON FACTS, EVIDENCE ON RECORD AND IN LAW, THE LEARNED CIT (A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION, AS PRAYED FOR. (4) THAT ON FACTS IN LAW, THE LEARNED CIT (A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE LEVY OF INTEREST U/S. 234B AND 234C OF THE ACT. 3. GROUND NO. 1 TO 3 ARE INTERCONNECTED AND RELATES TO ADDITION OF RS. 1,41,28,605 MADE ON ACCOUNT OF BOGUS PURCHASES, HENCE, THESE ARE BEING CONSIDERED TOGETHER. 4. SUCCINCTLY, FACTS AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND HAD FILED RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME OF RS. 4,68,690. SUBSEQUENT TO THIS, THERE WAS A SEARCH AND SEIZURE OPERATION CARRIED OUT ON 03.10.2013 IN THE CASE OF SHRI RAJENDRA JAIN GROUP, SANJAY CHOUDHARY GROUP AND DHARAM CHAND JAIN GROUP OF MUMBAI, WHICH REVEALED THAT THE SAID GROUP HAD PROVIDED ACCOMMODATION ENTRIES TO VARIOUS PARTIES IN RESPECT OF BOGUS DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 3 OF 15 UNSECURED LOAN AND BOGUS PURCHASES THROUGH 16 BENAMI WEB CONCERNS. IT WAS NOTICED FROM THE REPORT OF DIRECTOR OF INCOME-TAX (INV)-MUMBAI DATED 14.03.2014 THAT THE ASSESSEE-FIRM HAS RECEIVED ACCOMMODATION ENTRIES OF RS. 1,41,28,605 FROM SHRI SANJAY CHAUDHARY, PROPRIETOR OF MAYANK IMPEX (HUF) DURING ASSESSMENT YEAR 2007-08. ACCORDINGLY, THE CASE OF THE ASSESSEE WAS REOPENED AND A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 27.03.2014 AND SERVED UPON THE ASSESSEE ON 30.03.2014. THE STATUTORY NOTICE WERE ISSUED AND SCRUTINY ASSESSMENT WAS MADE. IN THE STATEMENT RECORDED ON OATH UNDER SECTION 132(4), SHRI SANJAY CHAUDHARY PROPRIETOR OF MAYANK IMPEX(HUF) HAS ADMITTED THE FACT THAT ALL THE CONCERNS CONTROLLED AND MANAGED BY HIM ARE NOT DOING ANY REAL TRADING IN DIAMONDS BUT INDULGED IN PAPER TRANSACTION ONLY WITHOUT ANY PHYSICAL STOCK FOR GOODS IN THE NAME OF NUMEROUS CONCERNS. THE AO CITING DECISION IN THE CASE OF KAMALCHAND NATHAMALAL LUNIA OF ITAT AHMEDABAD 514 TAXPUNDIT 33 [2014] 40 CCH 199 (AHD) TREATED THE AMOUNT OF RS. DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 4 OF 15 1,41,28,605 AS BOGUS PURCHASES MADE FROM SANJAY CHAUDHARY HUF PROPRIETOR OF M/S. MAYANK IMPEX. 5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE WAS DIRECTED TO PROVIDE CURRENT ADDRESS OF THE SELLER FOR VERIFICATION. IN RESPONSE TO WHICH, THE APPELLANT HAS PROVIDED TWO ADDRESSES OF THE SELLER, HOWEVER, THE ENQUIRY DONE THROUGH INSPECTOR REVEALED THAT THE PARTY IS NOT TRACEABLE ON GIVEN ADDRESS. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, AFTER RELYING ON SOME OF CASE LAWS, THE CIT (A) UPHELD THE ACTION OF THE AO IN TREATING THE PURCHASES AS BOGUS. 6. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE COPIES OF STATEMENT RECORDED FROM SELLER WERE NOT PROVIDED TO THE ASSESSEE. NOR ANY CROSS EXAMINATION WAS ALLOWED AS DEMANDED (PB-13). THE LD. A.R. RELIED IN THE CASE OF CIT V. ASHISH INTERNATIONAL OF HON`BLE BOMBAY HIGH COURT [TAX APPEAL NO. 4299 OF 2009 DATED 22.02.2011] WHEREIN OPPORTUNITY OF CROSS DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 5 OF 15 EXAMINATION WAS NOT ALLOWED HENCE, THE ADDITION ON ACCOUNT OF BOGUS PURCHASES WAS DELETED BY THE TRIBUNAL WAS HELD TO BE PROPER. THE LEARNED COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF HON`BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. M K BROTHERS [1987] 30 TAXMAN 547 (GUJ) /[1987] 163 ITR 249 (GUJ) SUBMITTED THAT IT WAS HELD THAT THERE WAS NO EVIDENCE ANYWHERE THAT THOSE CONCERNS GIVE BOGUS VOUCHERS TO THE ASSESSEE AND FURTHER THERE WAS NOTHING TO INDICATE THAT ANY PART OF FUND GIVEN BY THE ASSESSEE TO THOSE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM. IN SUCH CIRCUMSTANCES, IT WAS HELD THAT THE EVIDENCE WAS NOT ADEQUATE TO CONCLUDE THAT PURCHASES WERE BOGUS AND THEREFORE, THE ADDITION DELETED BY THE TRIBUNAL WAS UPHELD. IN THE CASE OF THE ASSESSEE ALSO, THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS GIVEN ANY FUND TO SELLER, WHICH HAS CAME BACK TO THE ASSESSEE IN ANY FORM. WITHOUT PREJUDICE TO ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ADMITTEDLY THE ASSESSEE HAS PROVIDED ALL BOOKS OF ACCOUNTS, CASH BOOK, BANK STATEMENT SALES EXCEPT NO CASH SALES AND DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 6 OF 15 PAYMENT WERE MADE BY ACCOUNT PAYEE CHEQUES. NO CASE OF THE AO THAT CASH RECEIVED BY THE ASSESSEE. THE ASSESSEE FILED CONFIRMATION PB-64-65. THE ASSESSEE HAS ALSO FURNISHED PAN NUMBER OF SUPPLIER AND HIS CONFIRMATION. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF SEJAL EXPORT (INDIA) V. DCIT I.T.A. NO. 3859/M/2017 DTD. 27.09.2017 IN WHICH BOGUS PURCHASE RESTRICTED TO 2% BY CIT (A) WAS UPHELD. THE LD. A.R. ALSO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF ACIT V. M/S. CHORON DIAMONDS (I) PVT. LTD. I.T.A. NO. 4449/MUM/2016 DTD. 30.10.2017 WHEREIN CONSIDERING THE DIAMOND MANUFACTURING RATE OF 1.5% TO 4.5% AND TRADING RATE OF THE RANGE OF 1% TO 3% , RATE OF 2% OF BOGUS PURCHASES WAS DIRECTED TO BE ADOPTED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS FAILED TO ALLOW CROSS- EXAMINATION AS DEMANDED BY THE ASSESSEE AS MENTIONED IN WRITTEN SUBMISSIONS. THEREFORE, RELYING ON THE DECISION OF HON`BLE SUPREME COURT IN THE CASE OF KISHANCHAND CHELARAM V. CIT 125 ITR 713 (SC) AND PRAKASHCHAND NAHTA V. UOI [2001] 247 ITR 274(SC) SUBMITTED THAT NO DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 7 OF 15 ADDITION CAN BE MADE WITHOUT GIVING AN OPPORTUNITY OF CROSS EXAMINATION OF THE PARTIES WHOSE STATEMENT WAS RELIED UPON BY THE AO. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS FILED DAY-TO-DAY QUANTITY DETAILS OF POLISHED DIAMONDS PURCHASED FROM ABOVE PARTIES AND THEIR CORRESPONDING SALES FROM THAT QUANTITY. IT WAS THEREFORE, CLAIMED THAT WHERE THE RELEVANT QUANTITY OF SALES OF DIAMONDS, THE QUANTITY OF SAID DIAMONDS WERE ACTUALLY PURCHASED. IT WAS SUBMITTED THAT WHEN THE PURCHASES ARE SUPPORTED BY BILLS AND THERE IS PAYMENT BY ACCOUNT PAYEE CHEQUES, NO ADDITION IS CALLED FOR AS HELD BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. M. K. BROTHERS [1987] 163 ITR 249 (GUJ). IT WAS ALSO CONTENDED THAT WHEN SALES ARE NOT DOUBTED THEN PURCHASES COULD NOT BE DOUBTED. IT WAS SUBMITTED THAT IN THE CASE OF THE ASSESSEE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES AND NO MATERIAL WAS BROUGHT ON RECORD THAT MONIES ARE RETURNED TO THE ASSESSEE AND THEREFORE, RATE ADOPTED IN VIJAY PROTEINS 55 TTJ 76 (AHD-TRIB) OUGHT NOT TO BE ADOPTED IN THIS CASE. THE LD. AR FURTHER SUBMITTED THAT TOTAL SALES ARE TARS 4.29 DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 8 OF 15 CRORES INCLUDING 90% IS FROM EXPORTS ON WHICH GROUND PROFIT RATE DISCLOSED BY THE ASSESSEE COMES TO 8.55% WHICH IS AS PER THE MARKET RATE OF SIMILAR DIAMOND TRADERS AND ALSO SIMILAR TO AS DISCLOSED BY THE ASSESSEE IN EARLIER YEARS. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, IT WAS URGED THAT THE ADDITION BE DELETED IN FULL. 7. PER CONTRA, THE LD. DR SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT NO INFORMATION WAS SUPPLIED BUT THE ASSESSMENT WAS REOPEN ON THE BASIS OF INFORMATION RECEIVED FROM DGIT(INV), HENCE, THE CONTENTION IS NOT ACCEPTABLE. THE AO HAS EXAMINED THE MATTER AS DISCUSSED IN THE ASSESSMENT ORDER. THE LD. SR. DR RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF VIJAY PROTEINS 55 TTJ 76 (AHD-TRIB) AND SUBMITTED IT IS FACT THAT SELLER PARTY IS NOT TRACEABLE, HENCE, PURCHASES NEEDS TO BE HELD AS BOGUS AND ENTIRE ADDITION BE UPHELD AS SUSTAINED BY THE CIT (A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS MADE PURCHASES OF RS. DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 9 OF 15 1,41,28,605 FROM M/S. MAYANK IMPEX PROPRIETOR CONCERN OF SHRI SANJAY CHAUDHARY, HUF. THE ASSESSEE HAS FAILED TO PRODUCE THE SAID PARTY FOR VERIFICATION TO PROVE THE GENUINENESS OF PURCHASES. SHRI SANJAY CHAUDHARY HAS ADMITTED IN HIS STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION CONDUCTED IN THEIR CASE THAT THEY USED TO PROVIDE BOGUS ACCOMMODATION BILLS. HOWEVER, THE COPIES OF HIS STATEMENT WAS NOT MADE AVAILABLE TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOR ANY CROSS-EXAMINATION WAS ALLOWED. THEREFORE, THE VIOLATION OF NOT ALLOWING CROSS EXAMINATION TO THE ASSESSEE AS HELD IN THE CASE OF CIT V. M/S. ASHISH INTERNATIONAL TAX APPEAL NO. 4299 OF 2009 DATED 22.02.2011, WHICH SUPPORTS THE CASE OF THE ASSESSEE. THE LD. A.R. SUBMITTED THE AO HAS RELIED ON THE DECISION IN THE CASE OF KARAMCHAND NATHMAL LUNIA [2014] 40CCH 199 (AHD-TRIB) WHEREIN IT WAS HELD THAT THE COMPANIES OF MUKESH CHOKSI ARE ENTRY PROVIDER AND THEREFORE, THE TRANSACTION WITH THESE COMPANIES AS FACTS. ACCORDINGLY, THE WHOLE AMOUNT OF RS. 1,41,28,605 WAS ADDED AS BOGUS PURCHASES. THE DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 10 OF 15 ASSESSEE HAS DULY PRODUCED THE COPIES OF BILLS, INVOICES AND PAYMENTS IS MADE BY ACCOUNT PAYEE CHEQUES. THIS SHOWS THAT PURCHASES HAVE BEEN MADE, BUT MAY BE NOT FROM THE PARTY FROM WHOM PURCHASES BILLS HAVE BEEN OBTAINED. THE ONLY POSSIBILITY IS THEREFORE, IS THAT THE ASSESSEE MIGHT HAVE INFLATED THE PURCHASES, AS SALE HAS NOT BEEN DOUBTED BY THE AO. IN VIEW OF THIS MATTER, IT IS NOT JUST OR REASONABLE TO TREAT ENTIRE PURCHASES WHEN CORRESPONDING SALES HAS NOT BEEN DOUBTED BY THE AO. THERE CANNOT BE ANY SALES WITHOUT MAKING PURCHASES. WE ARE, THEREFORE, OF THE VIEW THAT IT IS A SIMPLE LOGIC THAT WHEN THE AO HAS NOT QUESTIONED THE SALES /STOCK THEN THERE IS NO LOGIC TO DISALLOW THE 100% BOGUS PURCHASES. IT IS OBVIOUS THAT THERE CANNOT BE ANY SALES WITHOUT PURCHASES. THE CO-ORDINATE BENCH OF THE TRIBUNALS IN SUBSEQUENT DECISIONS HAVE RESTRICTED THE DISALLOWANCE TO 12.5% INSTEAD OF 25% AS ADOPTED IN THE CASE OF VIJAYA PROTEINS LTD. (SUPRA). WE FIND THAT IN THE CASE OF VIJAY PROTEINS 55 TTJ 76 (AHD-TRIB) NUMBER OF ADVERSE FACTS WERE BROUGHT ON RECORD NAMELY BLANK BILL BOOK AND SIGNED CHEQUE BOOK OF NUMBER OF DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 11 OF 15 PERSON WERE FOUND, PAYMENT WERE MADE BY CROSSED CHEQUE AND NOT BY ACCOUNT PAYEE CHEQUES AND IT WAS ESTABLISHED THAT CHEQUES WERE ENCASHED BY PARTY ITSELF AND ACCORDINGLY MONEY HAD COME BACK TO THE ASSESSEE. THE CO-ORDINATE BENCH OF AHMEDABAD TRIBUNAL IN THE CASE OF M/S. SURYANARAYAN SILK MILLS (P) V. ACIT [I.T.A. NO. 2088/AHD/2007 DTD. 22.08.2017] HAS CONSIDERED THE DECISION OF N. K PROTEINS LTD. V. DCIT [TAX APPEAL NO.242/2003 DATED 20.06.2016 AS UPHELD IN SLP (C ) CC NO.963/2017 DTD. 16.01.2017-GUJARAT HIGH COURT] AND HAD DISTINGUISHED THE SAID CASE ON THE GROUND THAT A SEARCH HAS BEEN CONDUCTED IN SAID CASE LEADING TO SEIZURE/ RECOVERY OF BLANK SIGNED CHEQUES , VOUCHERS OF NUMBER OF CONCERNS ALONG WITH ENDORSEMENTS , BLANK PURCHASE BILLS , BOOKS LETTER HEADS FROM SEARCHED PERSONS. THERE ARE NO SUCH FACTS IN THE INSTANT CASE. IN VIEW OF THESE FACTS, THE SAID CASE WAS DISTINGUISHABLE. THE TRIBUNAL THEREFORE, RESTRICTED THE DISALLOWANCE TO 12.5%. NO SUCH ADVERSE FACTS ARE PRESENT IN THE PRESENT CASE. IN VIEW OF ABOVE FACTS, WE ARE OF THE VIEW THAT FACTS N. K PROTEINS LTD. V. DCIT [TAX APPEAL DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 12 OF 15 NO.242/2003 DATED 20.06.2016 AS UPHELD IN SLP (C ) CC NO.963/2017 DTD. 16.01.2017 GUJ. HIGH COURT] ARE NOT APPLICABLE TO PRESENT FACTS OF THE CASE. THE BOOK RESULTS OF THE ASSESSEE ARE IN LINE WITH BOOK RESULTS OF EARLIER YEARS. THE BOOKS OF ACCOUNTS ARE AUDITED UNDER SECTION 44AB OF THE ACT AND NO ADVERSE COMMENTS POINTED OUT BY THE AUDITORS. QUANTITY RECORDS ARE MAINTAINED. THERE IS NO EVIDENCE THAT CASH RECEIVED BACK EXCEPT STATEMENT OF SHRI SANJAY CHAUDHARY, WHICH IS GENERAL IN NATURE AND SAME WAS ALSO NOT MADE AVAILABLE TO THE ASSESSEE. THE CASE LAWS OF KARAMCHAND NATHMAL LUNIA (SUPRA) RELIED BY THE AO IS NOT APPLICABLE TO THE ASSESSEE CASE AS THAT CASE WAS OF LTCG TRANSACTION MADE OUT OF STOCK EXCHANGE AND PAYMENTS WERE MADE IN CASH. HOWEVER, THERE IS NO CORROBORATING EVIDENCES THAT BILLS FROM THE IMPUGNED PARTY WERE AS PER MARKET VALUE AND PURCHASE COST REPRESENT FAIR MARKET VALUE. 9. WE FURTHER NOTICE THAT THE HON`BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT. LTD. V. ITO [TAX APPEAL NO. 200 OF 2003] DATED 17.11.2014 WHEREIN THE HON`BLE HIGH COURT HAS OBSERVED AS UNDER: DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 13 OF 15 5. WE HAVE HEARD LEARNED ADVOCATES FOR BOTH SIDES AND PERUSED THE ORDERS PASSED BY THE CIT AS WELL AS THE TRIBUNAL. AS A RESULT OF HEARING AND PERUSAL OF RECORDS, IT IS BORNE OUT OF THAT THE AVERAGE PROFIT WHICH HAS BEEN CONSIDERED FOR THIS INDUSTRY IS AROUND 3 TO 7%. THE TRIBUNAL IN THE INSTANT CASE HAS DIRECTED ADDITION AT THE RATE 12.5%, WHICH IS IN OUR OPINION, IS ON HIGHER SIDE. LEARNED ADVOCATE FOR THE APPELLANT HAS FAIRLY CONCEDED THAT EXCESS 7% IS ON HIGHER SIDE AND THAT AT THE MOST 3% MAY BE APPLIED. IN THAT VIEW OF THE MATTER, GOING BY THE PECULIAR FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT ENDS OF JUSTICE WILL BE MET BY TAKING MEAN OF MAXIM AND MINIMUM OF THE PROFIT RATE WHICH COMES TO 5%. THEREFORE, WE THINK IT FIT TO DIRECT THE ASSESSING OFFICER TO APPLY 5% G.P. RATE AS THE RATE OF 12.5% IS DRASTICALLY HIGHER AND 1.03% IS DRASTICALLY LOWER. GROSS PROFIT RATE OF 5% IS THE AVERAGE RATE OF THE INDUSTRY AND WE THINK IT FIT TO MAKE ADDITION ON ACCOUNT OF 5% GROSS PROFIT RATE. THE ADDITION BE MADE ACCORDINGLY. WE THEREFORE, ANSWER THE QUESTION RAISED IN THE NEGATIVE I.E. AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 10. WE FURTHER OBSERVE THAT GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE IS AT 8.55% WHICH IS AS PER THE MARKET RATE OF SIMILAR DIAMOND TRADERS AND ALSO SIMILAR TO AS DISCLOSED BY THE ASSESSEE IN EARLIER YEARS. HOWEVER, IT IS ALSO A FACT THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE PURCHASES BY NOT PRODUCING THE PARTIES IN QUESTION AND ADMISSION OF THE PARTY THAT THEY DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 14 OF 15 HAVE INDULGED IN PROVIDING BOGUS ACCOMMODATION ENTRIES. WE MAY ALSO NOTE THE LD. CIT (A)-3, SURAT IN GANGANI IMPEX (SUPRA) HAS ALSO CONSIDERED 5 % NET PROFIT RATE IN CASE OF SUCH BOGUS PURCHASES WHEREAS THE OTHER CIT (A) `S OF MUMBAI INCOME-TAX CHARGES AS REPRODUCED BY THE LD. CIT (A) -3 IN HIS ORDER IN THE CASE OF GANGANI IMPEX (SUPRA) HAVE ADOPTED 3% NET PROFIT RATE OF SUCH BOGUS PURCHASES MADE THROUGH BHANWARLAL JAIN GROUP. SOME CASES CITED BY THE TRIBUNAL OF MUMBAI TRIBUNAL HAS ADOPTED 2% NET PROFIT RATE. THEREFORE, IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES AND CONSIDERING THE NET PROFIT OF 5% AS THE AVERAGE RATE OF THE INDUSTRY AS OBSERVED BY THE HON`BLE JURISDICTIONAL HIGH COURT AND FOLLOWING THE JUDICIAL PRONOUNCEMENTS BY THE CO-ORDINATE BENCH OF TRIBUNALS AND THE DECISION OF HON`BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAYANK DIAMONDS PVT. LTD. V. ITO [TAX APPEAL NO. 200 OF 2003] DATED 17.11.2014; WE DEEM IT FIT TO RESTRICT THE ADDITION TO 5% OF TOTAL BOGUS PURCHASES OF RS. 1,41,28,605. WE ORDER ACCORDINGLY. THE AO WILL WORKED DELUXE DIAMOND V. ITO WARD 1(3)(1)/I.T.A. NO.1396/AHD/2017/A.Y.07-08 PAGE 15 OF 15 OUT THE ADDITION ACCORDINGLY. THUS, GROUND NO. 1 TO 3 OF APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. 11. SO FAR GROUND NO. 4 : RELATING TO CHARGING OF INTEREST UNDER SECTION 234B AND 234C IS CONCERNED, WE ARE OF THE VIEW THAT CHARGING OF INTEREST IS MANDATORY AS HELD BY THE HON`BLE SUPREME COURT IN THE CASE OF ANJUM M. H. GHASWALA 252 ITR 1 (SC), THEREFORE, IT IS UPHELD. HOWEVER, THE ASSESSEE IS ENTITLED TO CONSEQUENTIAL RELIEF IF ANY AS ARISE OUT ON GIVING EFFECT TO THIS ORDER. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 13. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.04.2018. SD/- SD/- (C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT: DATED: 11 TH APRIL, 2018/OPM COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT