ACIT 19(2), MUMBAI V. JAIPUR JEWELS, MUMBAI

ITA 1699/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9557 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARJU GARODIA
• Keywords: Bogus purchase; Rejection of books of accounts; Question of law; Accommodation entries; Onus to prove
• Section: 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 1699 / MUM/20 1 7 ( ASSESSMENT YEAR : 2007 - 08 ) ACIT 19(2) R.NO.207, MATRU MANDIR MUMBAI 400 007 VS. M/S. JAIPUR JEWELS G - 1, SWAPAN LO K 47 - A NEPEANSEA ROAD MUMBAI 400 006 PAN/GIR NO. APPELLANT ) .. RESPONDENT ) REVENUE BY MS. ARJU GARODIA REVENUE BY SHRI DEVENDRA JAIN DATE OF HEARING 24 / 08 /201 7 DATE OF PRONOUNCEME NT 13 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 30, MUMBAI DATED 07/12/2016 FOR A.Y.2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. THE FOLLOWING GROUNDS HAVE BEEN T AKEN BY THE REVENUE: - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER LD, CIT(A) IS CORRECT IN RELYING UPON THE ASSESSMENT ORDER FOR A.Y. 2011 - 12 WHILE DECIDING THE ISSUE FOR A. Y. 2007 - 08 WHEN IN A. Y. 2007 - 08, THE ASSESSEE HAD F AILED TO PRODUCE THE DAILY STOCK REGISTER AND THUS THE PURCHASES FOR A. Y. 2007 - 08 REMAINED UN VERIFIABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER LD. CTT(A)WAS JUSTIFIED IN SUSTAINING ONLY AN ADDITION 5% PROFIT RATE ON T OTAL PURCHASES OF RS. 1,67,45,412/ - MADE FROM THREE PARTIES AS THE ASSESSEE FAILED TO PRODUCE THE DAILY STOCK REGISTER AND TO CORRELATE THE SALE WITH PURCHASE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LEARNED CTT(A) OF THE ABOVE GROUNDS BE SET AS IDE AND THAT OF THE AO BE RESTORED. ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 2 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY, ' 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF 'MANUFACTURING AND TRADING OF PRECIOUS AND SEMI - PRECIOUS STONES AND JEWELLLERY. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILED ON 07 - 11 - 2007, DECLARING TOTAL INCOME OF RS.72,69,010/ - . THE CASE WAS REOPENED U/S 14 7 OF THE ACT, BY ISSUING NOTICE U/S 148 OF THE ACT ON 27 - 03 - 2014. THE REASONS FOR REOPENING OF THE ASSESSMENT IS BASED ON THE INFORMATION THAT SEARCH & SEIZURE OPERATIONS AS WELL AS SURVEY OPERATIONS WERE CONDUCTED ON 01 - 10 - 2013 BY THE DGU, INVESTIGATION W ING, MUMBAI, IN THE CASE OF SHRI PRAVEEN KUMAR JAIN AND ALSO IN THE GROUP CASES OF SHRI RAJENDRA KUMAR JAIN, SANJAY CHOUDHARY AND DHARIMCHAND JAIN AND OTHERS. DURING THE COURSE OF THE OPERATION, IT WAS FOUND THAT SEVERAL NAME LENDING DUMMY DIRECTORS, PARTN ERS/ PROPRIETORS OF VARIOUS CONCERNS WHICH WERE LITERALLY CONTROLLED, OPERATED AND MANAGED BY SHRI PRAVEEN KUMAR JAIN AND SHRI RAJENDRA KUMAR JAIN AND THE PERSONS - IN - CHARGE BELONGS TO THEIR NATIVE PLACE. POST SEARCH INVESTIGATION REVEALS THAT THE ASSESSEE HAS TAKEN ACCOMMODATION ENTRIES IN THE FORM OF BOGUS PURCHASES FROM M/S.MOULIMANI IMPEX PVT. LTD., M/S. VITRAG JEWELS AND M/S. JPK TRADING CO. PVT. LTD., AMOUNTING TO RS.1,67,45,412/ - . THEREFORE, THE TOTAL PURCHASES FROM THE PARTY AMOUNTING ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 3 TO RS.1,67,45,4 12/ - WAS TREATED AS NON - GENUINE PURCHASES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. BY THE IMPUGNED ORDER, CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 5% AFTER OBSERVING AS UNDER: - 7.3 I HAVE CAREFULLY CONSIDERED THE GROUNDS OF APPEAL AND THE R IVAL CONTENTIONS ON THE ISSUE OF ADDITION MADE TOWARDS BOGUS PURCHASES MADE FROM THE THREE PARTIES. ON PERUSAL OF THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, I HAVE FOUND THAT IN THE APPELLANT'S CASE THERE IS AN OVERWHELMING EVIDENCE IN THE FORM OF S WORN STATEMENTS RECORDED FROM THE ALLEGED SUPPLIERS GIVEN BEFORE THE INVESTIGATION WING, MUMBAI THAT THEY ARE ONLY NAME SAKE PROPRIETORS/ PARTNERS / DIRECTORS OF THE CONCERNS AND THE ACTUAL MANAGEMENT & CONTROL IS BY SHRI PRAVIN JAIN, SHRI RAJENDRA JAIN & OTHERS AND HIS FAMILY MEMBERS. ALL OF THEM INCLUDING THE IN - CHARGE PERSONS OF THE DUMMY CONCERNS ALSO ADMITTED THAT THEY ARE ONLY GIVING ACCOMMODATION ENTRIES TO SEVERAL PARTIES AND THE APPELLANT IS ONE AMONG THEM. 7.4 AFTER WEIGHING THE EVIDENCES PROS AND CON, I AM OF THE OPINION THAT ONUS IS ALWAYS ON THE APPELLANT TO PROVE AS TO HOW THE MATERIAL PURCHASED WAS FIRSTLY OBTAINED WHEN THE SUPPLIERS THEMSELVES ADMITTED THAT THEY NEVER DID THE BUSINESS AND ARE MERELY NAME LENDERS FOR THE BUSINESS CONCERNS OF S HRI PRAVIN JAIN, RAJENDRA JAIN AND OTHERS, WHO HAS ADMITTED THAT ONLY ACCOMMODATION ENTRIES WERE GIVEN AND NO ACTUAL SALE TO THOSE PARTIES. IN VIEW OF THE SAME, I AM IN AGREEMENT WITH THE FINDINGS OF THE AO THAT THE PURCHASES ARE NOT MADE FROM THESE PARTIE S. HOWEVER, IN THIS CASE AFTER REJECTING THE BOOKS OF ACCOUNTS AO ADDED THE ENTIRE AMOUNT OF THE PURCHASES FROM THOSE THREE PARTIES. BUT AT THE SAME TIME, AO DID NOT DISTURBED THE SALES, IGNORING THE FACT THAT THERE WILL NOT BE ANY SALES WITHOUT ANY PURCHA SES AND MOREOVER SOME PORTION OF THE SALE IS FROM EXPORTS WHICH ARE EVIDENCED FROM THE INVOICES AND RECEIPTS CREDITED IN THE BANK ACCOUNT. AT THE SAME TIME, ONE SHOULD NOT IGNORE THAT THERE IS CLEAR CUT EVIDENCE IN THE FORM OF SWORN DEPOSITIONS GIVEN IN TH E SEARCH OPERATIONS BY THE SUPPLIERS THAT THEY HAVE NOT SUPPLIED THE GOODS AND ONLY PROVIDED ACCOMMODATION ENTRIES. IN THESE CIRCUMSTANCES I AM IN SUPPORT OF THE VIEWS OF THE AO THAT THERE IS EVERY CHANCE THAT THE APPELLANT MIGHT HAVE PURCHASED GOODS FROM THE GREY MARKET. A PERSON WHO PROCURES THE MATERIAL FROM THE GREY MARKET AND SELLS THE SAME AND RECEIVES THE SALE PROCEEDS THROUGH PROPER BANKING CHANNELS, TO COMPLETE THE CHAIN OF TRANSACTION I.E. TO BOOK THE PURCHASES AGAINST THE SALE PROCEEDS RECEIVED, HE OBTAINS THE BILLS FROM ENTRY PROVIDERS, - LIKE SHRI SHRI PRAVIN JAIN, RAJENDRA JAIN ENTITIES IN THE PRESENT CASE - ISSUES CHEQUE TO THEM AND MOST PROBABLY RECEIVES THE AMOUNT BACK IN ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 4 CASH. IN THIS BACKGROUND THE APPELLANT HAS NO OTHER OPTION BUT TO TAKE BI LLS FROM THE ENTRY PROVIDERS AS THEY NEEDS TO COMPLETE THE TRADING ACTIVITY IN RESPECT OF THE DIAMONDS SOLD IN THE BOOKS OF ACCOUNTS. FROM THESE FINDINGS, IT CAN THUS BE SAFELY PRESUMED THAT THE APPELLANT HAS GROSSLY FAILED IN ITS DUTY TO MITIGATE THE BURD EN CAST UPON IT IN SO FAR AS PROVING THE GENUINENESS OF THE TRANSACTION, FROM THE SAID PARTIES ARE CONCERNED. 7.5 IN THIS REGARD IT IS ALSO PERTINENT TO MENTION THAT WHILE DEALING WITH THE CONCEPT OF BURDEN OF PROOF, ONUS OF PROVING IS ALWAYS ON THE PERSON WHO MAKES THE CLAIM. WHILE DEALING WITH THE ISSUE OF DECIDING THE BURDEN OF PROOF, HON'BLE SUPREME COURT IN THE CASES OF CIT VS. DURGAPRASAD MORE 82 ITR 540 AND SUMATI DAYAL VS. CIT 214 ITR 801 HAS HELD THAT THE APPARENT MUST BE CONSIDERED REAL UNTIL IT I S SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL AND THAT TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. THE HON'BLE COURT ALSO HELD THAT, IT IS NO DOUBT, TRUE THAT IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PROVISION AND IF A RE CEIPT IS IN THE NATURE OF INCOME, THE BURDEN TO PROVE THAT IT IS NOT TAXABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE ACT, LIES UPON THE ASSESSEE. IN THE CASE OF DURGAPRASAD MORE (SUPRA), THE HON'BLE COURT WENT ON TO ADD THAT A PARTY WHO RELIES ON A RECITAL IN A DEED HAS TO ESTABLISH THE TRUTH OF THIS RECITAL, OTHERWISE IT WILL BE VERY EASY TO MAKE SELF SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY WHO RELIED ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVADE TAX HAS TO HAVE SOME RECITALS MADE IN A DOC UMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT WIDE OPEN TO EVADE TAX. THE HON'BLE COURT FURTHER HELD THAT THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. T HEY WERE ENTITLED R TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. ' 7.6 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD 63 ITR 609 WHERE IT WAS HELD THAT THE IT. AUTHORITIES ARE ENTITLED TO PIERCE THE VEIL OF CORPORATE ENTITY AND TO LOOK INTO REALITY OF TRANSACTION. IN THE CASE OF MCDOWELL & CO. 154 ITR 148(SC) IT WAS STATED THAT IMPLICATIONS OF TAX AVOIDANCE ARE MANIFOLD. FIRST, THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REVENUE. NEXT, THERE IS SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY DUE TO PILING OF MOUNTAINS OF BLACK MONEY, CAUSING INFLATION. THUS, THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY, BY SOME OF THE ME MBERS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX PAYER AND HIS EXPERT TEAM ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 5 OF ADVISORS, AND ACCOUNTANTS ON THE ONE SIDE AND THE TAX GATHERER AND HIS PERHAPS NOT SO SUCCESSFUL ADVISORS ON THE OTHER SIDE. 7.7 THE ONUS TO PROVE THAT APPARENT, IS NOT THE REAL ONE, IS ON THE PARTY WHO CLAIMS IT TO BE SO, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. DAULAT RAM RAWATMULL [1973] 87 ITR 349 AND CIT V. DURGA PRASAD MORE (SUPRA). IT IS ALSO A SETTLED LEGAL PROPOSITION THAT IF NO EVIDENCE IS GIVEN BY THE PARTY ON WHOM THE BURDEN IS CAST, THE ISSUE MUST BE FOUND AGAINST HIM. HOWEVER, IN THE INSTANT CASE, THE APPELLANT HAS MISERABLY FAILED TO LEAD EVIDENCE. 7.8 THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL V. CIT [1988] 172 ITR 250 / 38 TAXMAN 190 HIGHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE LAW ARE NOT TO BE IGNORED BY THE AUTHORITIES, BUT AT THE SAME TIME, HUMAN PROBABILITY HAS TO BE THE GUIDING PRINCIPLE, SINCE THE AO IS NOT FETTERED, BY TECHNICAL RULES OF EVIDE NCE, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775. THE HON'BLE SUPREME COURT, IN THE CASE OF CHUHARMAL (SUPRA) HELD THAT WHAT WAS MEANT BY SAYING THAT EVIDENCE ACT DID NOT APPLY TO THE PROCEEDING S UNDER INCOME - TAX ACT, 1961, WAS THAT THE RIGOURS OF RULES OF EVIDENCE, CONTAINED IN THE EVIDENCE ACT WAS NOT APPLICABLE; BUT THAT DID NOT MEAN THAT WHEN THE TAXING AUTHORITIES WERE DESIROUS OF INVOKING THE PRINCIPLES OF EVIDENCE ACT, IN PROCEEDINGS BEFOR E THEM, THEY WERE PREVENTED FROM DOING SO. IT WAS FURTHER HELD BY THE HON'BLE APEX COURT THAT ALL THAT SECTION 110 OF THE EVIDENCE ACT, 1872 DID, WAS TO EMBODY A SALUTARY PRINCIPLE OF COMMON LAW JURISPRUDENCE VIZ, WHERE A PERSON WAS FOUND IN POSSESSION OF ANYTHING, THE ONUS OF PROVING THAT HE WAS NOT ITS OWNER, WAS ON THAT PERSON. THUS, THIS PRINCIPLE COULD BE ATTRACTED TO A SET OF CIRCUMSTANCES THAT SATISFIES ITS CONDITIONS AND WAS APPLICABLE TO TAXING PROCEEDINGS. 7.9 FROM THE ABOVE DISCUSSION, ONE CAN SA FELY CONCLUDE THAT THE APPELLANT HAD OBTAINED ONLY THE BILLS FROM THE ABOVE - MENTIONED PARTIES WITHOUT ACTUALLY GETTING THE MATERIAL. HOWEVER, IT IS ALSO A MATTER OF FACT THAT THE PURCHASES FROM THESE CONCERNS HAVE BEEN ENTERED INTO THE STOCK REGISTER AND T HE ASSESSEE HAS SHOWN CORRESPONDING SALES AGAINST THE SAID PURCHASES. THIS COULD ONLY MEAN THAT THE DIAMONDS WERE BOUGHT BY THE ASSESSEE, FROM GREY MARKET WITHOUT BILLS AND TO ADJUST THESE TRANSACTIONS INTO THE BOOKS OF ACCOUNTS, THE APPELLANT OBTAINED BIL LS FROM PRAVIN JAIN & RAJENDRA JAIN GROUP CONCERNS. IN SUCH SCENARIO, ON ONE HAND THE GENUINENESS OF THE PURCHASE PARTY IS DOUBTED BUT THE GENUINENESS OF PURCHASE ON A WHOLE CANNOT BE DOUBTED. 7.10 IN THIS CASE, I FIND THAT QUANTITATIVE DETAILS WERE MAINTA INED, LD. AO NOT DOUBTED THE GENUINENESS OF SALES, HOWEVER, HELD THAT THE APPELLANT INDULGED IN NON - GENUINE PURCHASES TO SUPPRESS THE PROFITS AND REJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145 (3) OF THE I T ACT AND PROCEEDED TO ADD THE ENTIRE AMOUNT OF SUCH PURCHASES MADE FROM ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 6 THE THREE PARTIES, 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 THE GOODS WITHOUT MAKING ANY PURCHASES. IF THE PURCHASES ARE NOT MADE FROM THOSE PARTIES, THE APPELLANT MUST HAVE PURCHASED FROM SOME OTHER PARTIES. IN SUCH A SITUATION, ADDING THE ENTIRE AMOUNT OF PURCHASE TO THE TOTAL INCOME IS NOT CORRECT BECAUSE IT WILL GIVE A DISTORTED PICTURE OF THE PROFIT MARGIN. IN MY CONSIDERED OPI NION, WHICH IS SUPPORTED BY SEVERAL JUDICIAL FORUMS, ESTIMATING THE PROFIT PERCENTAGE ON SUCH PURCHASES IS THE CORRECT WAY TO BRING THE INCOME TO TAX. THUS, THE ISSUE WOULD BOIL DOWN TO FINDING OUT WHAT IS THE CORRECT ELEMENT OF PROFIT EMBEDDED IN BOGUS PU RCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SUCH UNKNOWN ENTITIES. 7.11 IN THIS REGARD, IT IS APT TO REFER CERTAIN DECISIONS DEALING THE SIMILAR ISSUE. THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT. LTD. 355 ITR 290 (GUJ) WH ERE THE HON'BLE COURT WAS BATTLING WITH THE FINDING OF HON'BLE HAT THAT PURCHASES WERE MADE FROM BOGUS PARTIES. THE TRIBUNAL HAD HELD THAT THOUGH PURCHASES WERE MADE FROM BOGUS PARTIES, NEVERTHELESS, THE PURCHASES THEMSELVES WERE NOT BOGUS AS THE ENTIRE QU ANTITY 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 GUJARAT HIGH COURT TAKING COGNIZANCE OF THE FACT HELD THAT WHETHER PURCHASES THEMSELVES WERE BOGUS O R WHETHER PARTIES FROM WHOM SUCH PURCHASES WERE MADE WERE BOGUS, IS ESSENTIALLY A QUESTION OF FACT AND THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD AND CONCLUDED THAT THE ASSESSEE DID PRODUCE CLOTH AND SELL FINISHED GOODS, THE ENTIRE AMOUNT COVERED UNDER SUCH PURCHASE WOULD NOT BE SUBJECTED TO TAX AND ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO BE TAXED. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE HIGH COURT ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY OIL CAKE IND. 316 ITR 274 (GUJ). 7.12 IN SANJAY OILCAKE INDUSTRIES V. COMMISSIONER OF INCOME - TAX [2009] 316 ITR 274 (GUJ), IT WAS HELD AS UNDER: '12. THUS, /T IS APPARENT THAT BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE CONCURRENTLY ACCEPTED THE FINDING OF THE ASSESSING OFFICER THAT THE APPARENT SELLERS WHO HAD ISSUED SALE BILLS WERE NOT TRACEABLE. THAT GOODS WERE RECEIVED FROM THE PARTIES OTHER THAN THE PERSONS WHO HAD ISSUED BILLS FOR SUCH GOODS. THOUGH THE PURCHASES ARE SHOWN TO HAVE BEEN MADE BY MAKING PAYMENT THEREOF BY A CCOUNT PAYEE CHEQUES, THE CHEQUES HAVE BEEN DEPOSITED IN HANK ACCOUNTS OSTENSIBLY IN THE NAME OF THE APPARENT SELLERS, THEREAFTER THE ENTIRE AMOUNTS HAVE BEEN WITHDRAWN BY BEARER CHEQUES AN D THERE IS NO TRACE OR IDENTITY OF THE PERSON WITHDRAWING THE AMOUN T FROM THE BANK ACCOUNTS. IN THE LIGHT OF THE AFORESAID NATURE OF EVIDENCE IT IS NOT POSSIBLE TO RECORD A DIFFERENT CONCLUSION, DIFFERENT FROM THE ONE RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 7 CONCURRENTLY HOLDING THAT THE APPARENT SELLERS WE RE NOT GENUINE, OR WERE ACTING AS CONDUIT BETWEEN THE ASSESSEE - FIRM AND THE ACTUAL SELLERS OF THE RAW MATERIALS. BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE, THEREFORE, COME TO THE CONCLUSION THAT IN SUCH CIRCUMSTANCES, THE LIKELIHOOD OF THE PURCHASE PRICE BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DISLODGE SUCH FINDING. THE ISSUE IS NOT WHETHER THE PURCHASE PRICE REFLECTED IN THE BOOKS OF ACCOUNT MATCHES THE PURCHASE PRICE STATED TO HAVE BEEN PAID TO OTHER PERSONS. THE ISSUE IS WHETHER THE PURCHASE PRICE PAID BY THE ASSESSEE IS REFLECTED AS RECEIPTS BY THE RECIPIENTS. THE ASSESSEE HAS, BY SET OF EVIDENCE AVAILABLE ON RECORD, MADE IT POSSIBLE FOR THE RECIPIENTS NOT BEING TRACEABLE FOR THE PURPOSE OF INQUIRY AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE HAVE BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS. HENCE, THE ESTIMATE MADE BY THE TWO APPELLATE AUTHORITIES DOES NOT WARRANT INTERFERENCE. EVEN OTHERWISE, WHETHER THE ESTIMATE SHOULD BE AT A PARTICULAR SUM OR AT A DIF FERENT SUM, CAN NEVER BE AN ISSUE OF LAW.' 7.13 SIMILARLY, IN YET ANOTHER DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 385 (GUJ), HON'BL E COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O. HAD FOUND TH AT 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 PROF IT OF THE ASSESSEE. LD. CIT(A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, PARTIALLY SUSTAINED THE ADDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER, SUSTAINED THE AD DITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS, THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS, BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNTS, ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. THE TRIBUNAL FOR ARRIVING THE PROFIT EMBEDDED IN THE TRANSACTIONS @ 12.5% HELD AS UNDER: 'HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE B EEN INFORMED THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC.,. IT HAS ALSO BEEN INFORMED THAT IN THIS INDUSTRY ABOUT 2,5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DIRECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% OF THE PURCHASE FROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DECIDE THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED/' ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 8 7.14 TAKING INTO CONSIDERATION THE ABOVE FACTS, THE ISSUE ARRIVES AT, IS TO WHAT WOULD BE THE MARGIN, ONE CAN EXPECT WHILE BUYING THE MATERIAL FROM GREY MARKET INSTEAD OF NORMAL COURSE OF BUSINESS FROM REGULAR DEALERS. TWO ASPECTS NEED TO BE TAKEN INTO CONSIDERATION IN SU CH CIRCUMSTANCES. FIRST, THESE DIAMONDS IN THE GREY MARKET ARE ALWAYS CHEAPER THAN THE DIAMONDS SOURCED FROM THE GENUINE DEALER. THIS IS BECAUSE, THE GENUINE DEALER WOULD CHARGE HIS INCIDENTAL COST INCLUDING THE WHOLE ADMINISTRATIVE COST WHILE SELLING THE DIAMOND IN THE MARKET, WHEREAS THE PETTY DEALERS IN THE GREY MARKET DO NOT CARRY SUCH INCIDENTAL CHARGE; 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. 7.15 HENCE, THE TASK IS TO ASCERTAIN THE ADDITIONAL GP, WHICH THE APPELLANT MUST HAVE EARNED BY PURCHASING THE DIAMONDS FROM THE GREY MARKET, THAN FROM THE REGULAR DEALER. THIS WOULD BE THE MARGIN, WHICH THE PETTY TRADER IN THE GREY MARKET OFFERS OVER THE GENUINE TRADER. DURING THE PRESENT PROCEEDINGS, THE AR SUBMITTED A COPY OF THE ASSESSMENT ORDER PASSED IN THEIR OWN CASE BY THE AO ON 19 - 10 - 2016 FOR THE A.Y, 2011 - 12, WHEREIN THE AO ADOPTED 5% OF THE VALUE OF PURCHASES MADE FROM THE SUSPECTED PARTY TO TAK E CARE OF THE MARGIN EARNED BY THE ASSESSEE INDULGING IN SUCH ACTIVITY. 6. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PRECIOUS AND SEMI - PRECIOUS STONES AND JEWELLLERY. ON THE BASIS OF STATEMENT OF M/S. MOULIMANI IMPEX PVT. LTD., M/S. VITRAG JEWELS AND M/S. JPK TRADING CO. PVT. LT D., THE AO REACHED TO THE CONCLUSION THAT PURCHASES MADE FROM THESE PARTIES WERE BOGUS, ACCORDINGLY, HE ADDED ENTIRE AMOUNT IN THE INCOME OF THE ASSESSEE. IN AN APPEAL FILED BEFORE THE CIT(A), THE CIT(A) CONCLUDED THAT QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE WITH REGARD TO THE PURCHASES AND SALES WERE NOT DOUBTED BY AO. AS PER CIT(A) WHEN ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 9 THE SALES WERE GENUINE, IT IS NOT POSSIBLE TO SALE THE GOODS WITHOUT MAKING ANY PURCHASES. IT WAS OBSERVED THAT WHEN THE PURCHASES WERE NOT MADE FROM THOSE PARTIES, THE ASSESSEE MUST HAVE PURCHASED FROM SOME OTHER PARTIES. UNDER THIS SITUATION, ADDING ENTIRE AMOUNT OF PURCHASE TO TOTAL INCOME WAS NOT CORRECT. AFTER CONSIDERING THE VARIOUS JUDICIAL PRONOUNCEMENTS VIS - - VIS NATURE OF BUSINESS THE ASSESSEE WAS INVOLVED , THE CIT(A) CONCLUDED THAT ADDITION TO THE EXTENT OF 5% ON SUCH PURCHASE WILL SERVE THE PURPOSE OF JUSTICE. THE CIT(A) ALSO FOUND THAT IN THE IMMEDIATELY SUBSEQUENT ASSESSMENT YEAR 2011 - 12, AO HIMSELF ADDED 5% OF VALUE O N SUCH PURCHASES MADE FROM THE SUSPE CTED PARTY TO TAKE CARE OF THE MARGIN EARNED BY THE ASSESSEE INDULGING IN SUCH ACTIVITY. 8. THE DETAILED FINDING SO RECORDED BY CIT(A) HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. 9. CONSIDERING THE FACT THAT AO HI MSELF IN THE SUBSEQUENT ASSESSMENT YEAR HAS ADOPTED 5% OF VALUE ON SUCH PURCHASES, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR RESTRICTING THE ADDITION TO THE EXTENT OF 5%. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 09 /2017 S D/ - ( SANDEEP GOSAIN ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 13 / 09 /201 7 KARUNA SR. PS ITA NO. 1699/MUM/2017 M/S. JAIPUR JEWELS 10 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//