SUR GEMS , MUMBAI V. DCIT, MUMBAI

ITA 1822/MUM/2019

• Counselvise Citation: [2020] 108 COUNSELVISE.COM (IT) 4877 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N R AGRAWAL
• Keywords: Bogus purchase; Unexplained investment; Related party transaction; Principle of natural justice; Initiation of penalty proceedings; Reason to believe; TDS; Set aside
• Section: 271(1)(c); 69C; 143(3); 153A; 274; 251; 69A; 13; 147; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.2078, 2079, 2080, 2081, 2082, 2083 & 2084/M/2019 ASSESSMENT YEARS: 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 & 2016-17 DCIT, CENTRAL CIRCLE-3(1), ROOM NO.1924, 19 TH FLOOR, AIR INDIA BLDG., NARIMAN POINT, MUMBAI, MAHARASHTRA - 400021 VS. M/S. SUR GEMS, HW 4010 H TOWER, BHARAT DIAMOND BOURSE BKC BANDRA EAST, MUMBAI 400 051 PAN: AAAFS2996R (APPELLANT) (RESPONDENT) ITA NOS.1822, 1823, 1824, 1825, 1826, 1827 & 1828/M/2019 ASSESSMENT YEARS: 2009-10, 2010-11, 2012-13, 2013-14, 2014-15, 2015-16 & 2016-17 M/S. SUR GEMS, HW 4010 H TOWER, BHARAT DIAMOND BOURSE BKC, BANDRA (E), MUMBAI 400 051 PAN: AAAFS2996R VS. DCIT, CENTRAL CIRCLE-3(1), RANGE-3, ROOM NO.1924, 19 TH FLOOR, AIR INDIA BLDG., NARIMAN POINT, MUMBAI, MAHARASHTRA - 400021 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI N.R. AGRAWAL, A.R. REVENUE BY : SHRI SANDEEP RAJ, CIT D.R. DATE OF HEARING : 03.12.2020 DATE OF PRONOUNCEMENT : 28.12.2020 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TITLED CROSS APPEALS HAVE BEEN PREFERRED AGAINST THE ORDER DATED 28.01.2019 OF THE COMMISSIONER OF INCOME TAX ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 2 (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO VARIOUS ASSESSMENT YEARS. ITA NO.1822/M/2019 A.Y. 2009-10 2. THE GROUNDS RAISED BY THE ASSESSEE IN THESE APPEALS ARE COMMON EXCEPT THE AMOUNTS. THE GROUNDS FOR AY 2009-10 ARE EXTRACTED BELOW FOR THE SALE CONVENIENCE: GROUND NUMBER 1 THE LEARNED AO (DCIT) HAS ERRED IN ISSUING NOTICE UNDER SECTION 148 RWS 147, AFTER FOUR YEARS FROM END OF THE ASSESSMENT YEAR AND TO RE-OPEN CONCLUDED ASSESSMENT UNDER SECTION 143(3) OF THE ACT. (A) THE FINDINGS OF RUBBER STAMP AFTER SIX AND HALF YEAR, DURING SEARCH AT PREMISES OF ASSESSEE CAN LEAD TO NO CONCLUSION, AS RUBBER STAMPS ARE NOT USED ON BILLS FOR LABOUR CHARGES, AS PRESUMED BY AO. THUS NOTICE IS ISSUED WITHOUT APPLICATION OF MIND TO AVAILABLE INFORMATION. (B)ON FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS NO TANGIBLE INFORMATION AVAILABLE WITH AO TO FORM A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THUS NOTICE UNDER SECTION 148 IS BAD IN LAW. GROUND NUMBER 2 THE LEARNED AO GROSSLY ERRED IN PASSING ORDER OF ASSESSMENT IN VIOLATION OF RULES OF NATURAL JUSTICE AND WITHOUT OBTAINING APPROVAL OF PRINCIPLE CHIEF COMMISSIONER OF INCOME TAX OR CHIEF COMMISSIONER OR COMMISSIONER OF INCOME TAX AS REQUIRED UNDER SECTION 151 OF THE ACT, PRIOR TO ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. GROUND NUMBER 3 THE LEARNED CIT APPEAL GROSSLY ERRED IN DISALLOWING LABOUR CHARGES OF RS 79,21,156/- ON ESTIMATED BASIS WHEN AUDITED BOOKS OF ACCOUNTS ARE ACCEPTED AND NO DEFECTS ARE FOUND, PLACING SOLE RELIANCE ON FINDING OF RUBBER STAMPS FROM PREMISES OF THE ASSESSEE AFTER SIX AND HALF YEARS. GROUND NUMBER 4 THE LEARNED AO AND CIT APPEAL HAS ERRED IN PASSING ORDER BASED ON DOUBT, SURMISE AND CONJECTURE, RATHER THAN ON COGENT MATERIAL OR EVIDENCES. GROUND NUMBER 5 THE LEARNED CIT APPEAL HAS GROSSLY ERRED IN UNSCIENTIFICALLY APPLYING RATIO OF 3.91% OF LABOUR CHARGES TO VALUE OF IMPORT OF ROUGH DIAMONDS FOR FINANCIAL YEAR 2015-16 TO FINANCIAL YEAR 2008-09, JUST TO SUIT NEED OF THE REVENUE. GROUND NUMBER 6 IN LAW, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AO HAS GROSSLY ERRED IN INITIATING THE PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT WHEN NO SUCH PENALTY IS EXIGIBLE. SINCE THE PROCEEDINGS ARE WRONGLY INITIATED, AO MAY BE DIRECTED TO WITHDRAW SUCH PROCEEDINGS. ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 3 GROUND NUMBER 7 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 3. AT THE TIME OF HEARING, THE LD. A.R. HAS NOT PRESSED THE THE JURISDICTIONAL ISSUE RAISED IN GROUND NO.1 & 2. THEREFORE GROUND NO.1 & 2 ARE DISMISSED AS NOT PRESSED. 4. THE ISSUE RAISED IN GROUND NO.3,4 & 5 IS AGAINST THE PART CONFIRMATION OF ADDITION OF RS.79,21,156/- BY LD. CIT(A) AS AGAINST THE ADDITION OF RS.2,40,89,989/- MADE BY THE AO BY ESTIMATING THE LABOUR CHARGES. 5. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 23.09.2009 DECLARING NIL INCOME. SUBSEQUENTLY, A SEARCH UNDER SECTION 132 OF THE ACT WAS CONDUCTED AND CARRIED OUT ON THE SUR GEM GROUP ON 18.11.2015 OF WHICH THE ASSESSEE WAS ONE OF THE GROUP CONCERNS AND WAS ALSO COVERED IN THE SAID SEARCH. SIMULTANEOUSLY SEARCH ACTION WAS ALSO TAKEN ON THE BUSINESS PREMISES OF VARIOUS CONNECTED ASSESSES. DURING THE COURSE OF SEARCH, IT WAS NOTICED THAT ASSESSEE HAD PAID HUGE LABOUR CHARGES TO VARIOUS CONCERNS/CONTRACTORS BECAUSE SOME RUBBER STAMPS OF THESE CONCERNS, TO WHOM THE LABOUR CHARGES WERE PAID, WERE FOUND. DURING THE COURSE OF SEARCH IT CAME TO THE NOTICE OF THE SEARCH PARTY THAT ASSESSEE HAD PAID LABOUR CHARGES TO RIASH EXPORTS, ATUL B SAVALIA, VIJAY B. SAVALIA, GHANSHYAM RANGPARIA, HIMMAT SUJITRA AND NARESH KOTHIYA. DURING THE COURSE OF SEARCH SOME DOCUMENTS IN THE FORM OF PROTO TYPE INVOICE BILLS OF THE ABOVE LABOUR CONTRACTORS WERE FOUND FROM THE DESKTOP OF THE COMPUTER OF THE ASSESSEE AND ON BEING ASKED IT WAS EXPLAINED THAT THE UNSIGNED BILLS OF LABOUR ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 4 PARTIES WERE PREPARED BY THE STAFF OF ASSESSEE AT THE ASSESSEES PREMISES AT THE SPECIFIC REQUEST OF THE LABOUR PARTIES, BECAUSE THEY WERE NOT EDUCATED AND CAN NOT DO THEIR PAPER WORK. ON THE BASIS OF THIS INFORMATION, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECTION 148 DATED 31.03.2016 WHICH WAS DULY SERVED ON THE ASSESSEE. THEREAFTER, DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS CALLED UPON TO FILE THE VARIOUS DETAILS AND EXPLANATIONS QUA THE LABOUR CHARGES OF RS.2,40,89,989/-AND PROVE THE GENUINENESS AND PURPOSE FOR WHICH THESE WERE INCURRED IN THE BUSINESS OF THE ASSESSEE. THE ASSESSEE FILED PARTYWISE DETAILS OF LABOUR CHARGES GIVING NAME, ADDRESS, PAN, TDS AND PAYMENT DETAILS, COPIES OF LEDGER OF TDS AND OF THE RECIPIENTS, COPIES OF IMPORT, PURCHASE INVOICES AND SALE INVOICES AND SUBMITTED THAT ALL THESE WERE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE ONLY. BESIDES THE STATEMENTS OF LABOUR CONTRACTORS WERE ALSO RECORDED BY THE INVESTIGATION WING IMMEDIATELY AFTER THE SEARCH AND IT WAS CONFIRMED BY THE LABOUR CONTRACTORS THAT THEY WERE DOING JOB WORK FOR THE ASSESSEE WHICH IS SKILLED ONE BUT THEY , BEING UNEDUCATED AND NOT IN A POSITION TO DO THE PAPER WORK, DEPENDED UPON THE STAFF OF THE ASSESSEE FOR PREPARING LABOUR BILLS ETC. THE AO ,NOT BEING SATISFIED WITH THE REPLY OF THE ASSESSEE, ADDED THE ENTIRE LABOUR CHARGES OF RS.2,40,89,989/- TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED UNDER SECTION 69C OF THE ACT BY FRAMING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT VIDE ORDER DATED 30.12.2016. 6. THE AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE LD CIT(A) AND IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PARTLY ALLOWED ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 5 THE APPEAL OF THE ASSESSEE BY SUSTAINING THE ADDITION TO THE EXTENT OF 79,21,156/- BY OBSERVING AND HOLDING AS UNDER: 6.4 THE CONTENTIONS OF THE ASSESSEE HAVE BEEN DULY CONSIDERED. IT IS OBSERVED THAT DURING THE RELEVANT YEAR, THE ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF LABOUR / JOB WORK CHARGES OF RS 2,40,89,989/-. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS AND SUBSEQUENT EXPORT OF POLISHED DIAMONDS AND THEREFORE, IT DEFINITELY HAS TO INCUR EXPENDITURE ON LABOUR / JOB WORK CHARGES FOR POLISHING OF THE ROUGH DIAMONDS. THE FACT THAT THE ASSESSEE HAD CARRIED OUT LABOUR / JOB WORK ON CONTRACT BASIS WAS CONFIRMED BY M/S PARAS MANUFACTURING, MAIN LABOUR / JOB WORK PARTY AT THE TIME OF THE SEARCH ACTION AND ALSO BY 7 OF THE OTHER PARTIES, VIJAY B SAVALIA, ATUI B SAVALIA, NARESHBHAI KOTHIA, HIMATBHAI SOJITARA, PRAMOD B VEDAK, HITESHBHAI SHAH AND GHANSHYAM PATE! IN THE POST SEARCH PROCEEDINGS. MOREOVER, IT IS ALSO OBSERVED THAT THERE IS A REGULARITY IN THE PAYMENTS MADE BY THE ASSESSEE ON RAISING OF BILLS ON ACCOUNT OF JOB WORK / LABOUR CHARGES WHICH HAVE ALSO BEEN SUBJECTED TO TDS. THUS, IT HAS TO BE HELD THAT THE ASSESSEE HAS ACTUALLY INCURRED SOME REASONABLE EXPENDITURE BY WAY OF LABOUR / JOB WORK CHARGES. 6.5 HOWEVER, AS NOTED ABOVE, IN COURSE OF THE SEARCH ACTION, BLANK PROTO TYPE LABOUR / JOB WORK BILLS OF A NUMBER OF LABOUR (JOB WORK PARTIES WERE FOUND FROM THE PREMISES OF THE ASSESSEE. WHEN CONFRONTED, IT WAS SUBMITTED THAT THEY HAVE BEEN PREPARED AS PER THE INSTRUCTIONS OF SHRI SAKET MEHTA, MAIN PERSON OF THE ASSESSEE GROUP. THE PRESENCE OF THE SAID BLANK PROTO TYPE LABOUR / JOB WORK BILLS WAS ATTRIBUTED TO THE FACT THAT THE LABOUR / JOB WORK PARTIES ARE UNEDUCATED AND THEY THEMSELVES HAD REQUESTED THE ASSESSEE FOR PRINTING THE BILLS ON THEIR BEHALF. THIS EXPLANATION WOULD HAVE BEEN REASONABLE HAD THE RUBBER STAMPS OF THE LABOUR / JOB WORK PARTIES NOT BEEN FOUND FROM THE PREMISES OF THE ASSESSEE GROUP. FURTHER, IT IS NOTED THAT THE MAJOR PORTION OF THE LABOUR / JOB WORK CHARGES RELATES TO M/S RIASH EXPORTS (RS 1,41,24,946/-), ATUL SAVATIA (RS 30,19,478/-) AND VIJAY B SAVALIA (RS 30.96.967/-). THE SEARCH ACTION REVEALED THAT THESE LABOUR / JOB WORK BILLS WERE BEING MADE AT THE PREMISES OF THE ASSESSEE GROUP ITSELF AS PER THE INSTRUCTIONS OF SHRI SAKET MEHTA, MAIN PERSON OF THE ASSESSEE GROUP. FURTHER, IN COURSE OF THE STATEMENT ON OATH RECORDED OF SHRI MILAN V PATEL, PARTNER OF M/S PARAS MANUFACTURING, IT WAS ADMITTED THAT THIS CONCERN IS CONTROLLED BY MEHTA FAMILY ITSELF. IT WAS EXPLAINED BY SHRI MILAN V PATEL IN COURSE OF HIS SAID STATEMENT THAT HE HAD JOINED ASSESSEE GROUP AS AN EMPLOYEE OF M/S RIASH EXPORTS. HOWEVER, DUE TO SOME LABOUR UNION PROBLEM, M/S RIASH EXPORTS CLOSED DOWN IN 2012 AND M/S MAHAVIR MANUFACTURING WAS STARTED IN PLACE OF M/S RIASH EXPORTS, THEREAFTER, SUBSEQUENTLY ON 01.10.2014, M/S PARAS MANUFACTURING WAS FORMED WHEREIN HE WAS MADE ONE OF THE PARTNERS BY THE MEHTA FAMILY. THIS STATEMENT GIVEN BY SHRI MILAN V PATEL LEAVES NO DOUBT THAT NOT ONLY M/S RIASH EXPORTS BUT ALSO M/S MAHAVIR MANUFACTURING AND M/S PARAS MANUFACTURING ARE CONTROLLED BY THE MEHTA FAMILY ITSELF. IN VIEW OF THE FACTUAL POSITION WHICH EMERGES ON THIS ISSUE, THE POSSIBILITY OF INFLATION OF THE EXPENDITURE CLAIMED ON ACCOUNT OF LABOUR / JOB WORK CHARGES, CANNOT BE RULED OUT. 6.6 AS NOTED EARLIER, ONE OF THE MAIN ACTIVITIES OF THE ASSESSEE COMPRISES OF POLISHING OF ROUGH DIAMONDS WHICH ARE IMPORTED AND THEREAFTER THE EXPORT OF ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 6 POLISHED DIAMONDS. MOREOVER, THE ASSESSEE ALSO BUYS POLISHED DIAMONDS LOCALLY WHICH ARE THEREAFTER EXPORTED. THERE IS A DIRECT CO-RELATION BETWEEN THE EXPENDITURE ON ACCOUNT OF LABOUR / JOB WORK CHARGES AND THE AMOUNT OF EXPORT OF POLISHED DIAMONDS WHICH HAVE BEEN MANUFACTURED AFTER POLISHING OF ROUGH DIAMONDS. SIMILARLY, THERE IS A DIRECT CO-RELATION BETWEEN THE EXPENDITURE ON ACCOUNT OF LABOUR / JOB WORK CHARGES AND THE AMOUNT OF IMPORT OF ROUGH DIAMONDS WHICH HAVE BEEN SUBJECTED TO POLISHING. IN THE INSTANT CASE, THE ASSESSEE DOES NOT MAINTAIN SEPARATE ACCOUNTS OF EXPORT SALES OF POLISHED DIAMONDS WHICH HAVE BEEN PROCURED LOCALLY AND THE EXPORT SALES OF POLISHED DIAMONDS RELATED TO THE IMPORT OF ROUGH DIAMONDS. HOWEVER, THE ASSESSEE MAINTAINS A SEPARATE ACCOUNT OF THE IMPORTED ROUGH DIAMONDS WHICH HAVE BEEN SUBJECTED TO POLISHING. THEREFORE, THE ASSESSEE WAS ASKED TO PROVIDE THE RATIO OF THE LABOUR / JOB WORK CHARGES TO THE AMOUNT OF ROUGH DIAMONDS IMPORTED AND SUBJECTED TO POLISHING FOR THE VARIOUS RELEVANT YEARS TO ASCERTAIN WHETHER THE CLAIM MADE BY THE ASSESSEE IS WITHIN THE- REASONABLE RANGE. 7. AS NOTED EARLIER, SEARCH ACTION TOOK PLACE ON THE ASSESSEE GROUP ON 18.11,2015 AND THEREFORE THE BOOK RESULTS OF THE ASSESSEE FOR YEAR RELEVANT TO THE SEARCH DATE, I.E., AY 2016-17 CAN BE CONSIDERED TO BE MOST RELIABLE. IT WILL THEREFORE BE APPROPRIATE IF FOR THE PURPOSE OF DETERMINING THE EXCESS CLAIM OF LABOUR / JOB WORK CHARGES FOR THE VARIOUS YEARS, THE RATIO OF LABOUR / JOB WORK CHARGES TO THE AMOUNT OF IMPORTED ROUGH DIAMOND SUBJECTED TO POLISHING FOR AY 2016-17 IS USED FOR THE PURPOSE OF BENCHMARKING. THE RATIO OF LABOUR / JOB WORK CHARGES TO THE AMOUNT OF IMPORTED ROUGH DIAMONDS SUBJECTED TO POLISHING FOR THE YEAR RELEVANT TO AY 2016- 17 AS COMPUTED BY THE ASSESSEE IS OF 3.91%. IT IS ALSO NOTED THAT THE SAID RATIO OF LABOUR / JOB WORK CHARGES TO THE AMOUNT OF IMPORTED ROUGH DIAMONDS SUBJECTED TO POLISHING FOR THE BROKEN PERIOD STARTING FROM 01.04.2015 TO 18.11.2015 IS OF 5.65% WHICH IS MORE THAN 3.91%, WHICH SHOWS THAT THERE HAS BEEN NO MANIPULATION IN THE CLAIM OF JOB WORK/ LABOUR CHARGES FOR THE PERIOD SUBSEQUENT TO THE SEARCH ACTION TIL! 31.03.2016. ON THE OTHER HAND, THE SAID RATIO FOR THE RELEVANT YEAR AS COMPUTED BY THE ASSESSEE IS OF 5.83%. BY APPLYING THE SAID RATIO OF 3.91% ON THE AMOUNT OF ROUGH DIAMONDS SUBJECTED TO POLISHING OF RS 41.35.25.144/, THE REASONABLE QUANTUM OF JOB WORK / LABOUR CHARGES FOR THE RELEVANT YEAR IS ESTIMATED TO BE OF RS 1,61,68,833/- AS AGAINST THE ASSESSEE'S CLAIM OF HAVING INCURRED AN EXPENDITURE OF RS 2,40,89,989/-. THUS, THE EXCESS CLAIM OF LABOUR / JOB WORK CHARGES FOR THE RELEVANT YEAR IS DETERMINED TO BE OF RS 79,21,156/- (RS 2,40,89,989 (-) RS 1,61,68,833/-). THEREFORE, THE DISALLOWANCE MADE BY THE AO OF THE ENTIRE AMOUNT OF JOB WORK / LABOUR CHARGES IS RESTRICTED TO RS 79,21,156/-. HOWEVER, THE AO IS DIRECTED TO VERIFY THE SAID RATIOS COMPUTED BY THE ASSESSEE FOR AY 2016-17 AND ALSO FOR THE RELEVANT YEAR WHILE DETERMINING THE EXCESS CLAIM OF JOB WORK / LABOUR CHARGES. ACCORDINGLY, GROUND NO 2 OF THE APPEAL IS PARTLY ALLOWED. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE SEARCH WAS CONDUCTED ON THE SUR GEM GROUP ON 18.11.2015 OF WHICH THE ASSESSEE WAS A GROUP CONCERN AND NO INCRIMINATING MATERIAL WAS SEIZED WITH THE EXCEPTION OF SOME RUBBER STAMPS AND PROTO TYPE BILLS ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 7 RELATING TO THE LABOUR CONTRACTORS. WE NOTE THAT DURING THE COURSE OF SEARCH ACTION THE STATEMENT OF MS. FALGUNI MALKAN CFO AND MR. SAKET MEHTA WERE RECORDED AND IT WAS EXPLAINED TO THE SEARCH PARTY THAT THESE PROTO TYPE BILLS AND RUBBER STAMPS BELONGED TO THE LABOUR CONTRACTORS WHO WERE RENDERING SKILLED SERVICES TO THE ASSESSEE BUT ARE NOT EDUCATED TO DO THE PAPER WORK AND THEREFORE THE BILLS ARE PREPARED AT THE BEHEST AND AT THE REQUEST OF THESE LABOUR CONTRACTORS AND PAYMENTS ARE MADE ACCORDINGLY. WE ALSO NOTE THAT PAYMENT TO THE LABOURERS WERE MADE BY ACCOUNT PAYEE CHEQUES AFTER DEDUCTION OF TDS AND ALSO THAT THESE LABOURERS FILED THEIR BANK STATEMENTS AND PAN CARDS WITH THE DEPARTMENT. IT WAS ALSO EXPLAINED THAT THE LABOUR CHARGES WERE PAID FOR CUTTING AND POLISHING OF THE DIAMOND WHICH ARE IMPORTED IN RAW FORM AND EXPORTED AFTER FINISHING. WE ALSO FIND MERIT IN THE CONTENTIONS OF THE LD. A.R. THAT BOOKS OF ACCOUNTS WERE NOT REJECTED AND THEREFORE THE ESTIMATION CAN NOT BE DONE TO MAKE THE DISALLOWANCE ON ACCOUNT OF LABOUR CHARGES AND THEREFORE, THE DISALLOWANCE ON ACCOUNT OF LABOUR CHARGES IS WRONG. THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY ESTIMATING AND EXTRAPOLATING THE LABOUR CHARGES AT 3.9% BASED ON THE FIGURES OF 2015-16 WHICH APPEARS TO BE INCORRECT AS THE LABOUR CHARGES AS EXPLAINED DURING THE COURSE OF HEARING DEPEND UPON THE ROUGH DIAMOND TO BE FINISHED. MOREOVER, NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH QUA THE LABOUR CHARGES. IN THE PRESENT CASE, WE NOTICE THAT THE ADDITION IS PURELY MADE BY THE AO ON CONJUNCTURE, SURMISES AND BY MAKING EXTRAPOLATION WITHOUT BRINGING ANY MATERIAL ON RECORD. THE LD. CIT(A) HAS JUST PARTLY SUSTAINED ADDITION @ 3.9% OF VALUE OF DIAMOND TOWARDS LABOUR ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 8 CHARGES PAID IN 2015-16 WHICH IS UNFAIR AND CAN NOT BE SUSTAINED AS NO EXTRAPOLATION IS ALLOWED WHILE MAKING DISALLOWANCE WHICH HAS ON THE BASIS OF PROOFS AND EVIDENCES GATHERED. EVEN THE LABOUR CONTRACTORS HAVE CONFIRMED DURING THE COURSE OF RECORDING THEIR STATEMENTS BY INVESTIGATION WING AFTER SEARCH THAT THEY HAVE TO DEPEND ON THE STAFF OF THE ASSESSEE FOR PREPARATION OF LAB OUR BILLS AS THEY ARE UNEDUCATED THOUGH RENDERING SKILLED SERVICES TO THE ASSESSEE. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT(A) AND ACCORDINGLY, SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE DELETION OF ADDITION OF LABOUR CHARGES . GROUND NOS.3, 4 & 5 ARE ALLOWED. 8. THE ISSUE RAISED IN GROUND NO.6 IS QUA THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BY THE AO. AT THIS STAGE, WE WOULD LIKE TO MENTION THAT THIS GROUND IS PREMATURE AT THIS STAGE AND IS NOT BEING ADJUDICATED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1825/M/2019 AY 2013-14 10. THE GROUND NO.1 IS JURISDICTIONAL GROUND WHICH IS NOT PRESSED AT THE TIME OF HEARING AND THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. 11. THE ISSUE RAISED IN GROUND NO.2 & 3 IS AGAINST THE PART CONFIRMATION OF ADDITION BY LD CIT(A) ON ACCOUNT OF LABOUR CHARGES EQUAL TO 3.91% OF THE VALUE OF DIAMOND AS AGAINST THE DISALLOWANCE OF RS. 3,46,37,738/-. ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 9 12. THE ISSUE RAISED IN GROUND NO. 2 AND 3 IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 3,4 AND 5 IN ITA NO.1822/M/2012 A.Y. 2009-10 WHEREIN WE HAVE DELETED THE ADDITION AS SUSTAINED BY LD. CIT(A) ON ESTIMATED BASIS. OUR FINDING IN ITA NO.1822/M/2012 ON GROUND NO.3,4 & 5 WOULD, MUTATIS MUTANDIS, APPLY TO GROUND NOS.2 & 3 OF THIS APPEAL AS WELL. ACCORDINGLY, THE GROUND NO.2 & 3 ARE ALLOWED. 13. THE ISSUE RAISED IN GROUND NO.4 IS AGAINST THE PART CONFIRMATION OF ADDITION EQUAL TO 8% OF THE BOGUS PURCHASES OF RS.4,46,40,227/- BY LD. CIT(A) AS AGAINST THE ADDITION AND DISALLOWANCE OF ENTIRE BOGUS PURCHASES OF RS.4,46,40,227/- BY THE AO. 14. THE FACTS IN BRIEF ARE THAT THE ASSESSEE MADE PURCHASES FROM VARIOUS PARTIES DURING THE YEAR. DURING THE COURSE OF SEARCH ACTION UNDER SECTION 132 OF THE ACT, A STATEMENT OF MR. SAKET MEHTA WAS RECORDED AND HE EXPLAINED BEFORE THE SEARCH TEAM THE MODUS OPERANDI OF PURCHASES MADE BY THE ASSESSEE AND ALSO FURNISHED THE LIST OF PARTIES/SUPPLIERS. IT WAS FOUND THAT DURING THE YEAR THE ASSESSEE MADE PURCHASES FROM PARTIES CONNECTED WITH BHANWARLAL JAIN GROUP. ACCORDINGLY, MR. SAKET MEHTA WAS ASKED TO FURNISH THE YEAR WISE AND PARTYWISE DETAILS PURCHASES FROM THE PARTIES CONNECTED WITH BHANWARLAL JAIN GROUP AND PROVE THE GENUINENESS OF THE SAME. THE ASSESSEE FILED BILLS, VOUCHERS, DETAILS OF PAYMENTS BY ACCOUNT PAYEE CHEQUES, QUANTITATIVE DETAILS OF PURCHASES, SALES, STOCKS, LEDGER ACCOUNT CONFIRMATIONS AND BANK STATEMENTS ETC. THE ASSESSEE ALSO FURNISHED SALE INVOICES, AIRWAYS BILLS, INSURANCE, SHIPPING BILLS, RECEIPT OF EXPORTS ETC. THE AO, HOWEVER, WAS NOT SATISFIED ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 10 WITH THE EXPLANATION OF THE ASSESSEE AND ADDED THE ENTIRE AMOUNT OF PURCHASES OF RS.4,46,40,227/- MADE FROM VARIOUS PARTIES CONNECTED TO BHANWARLAL JAIN GROUP AS BOGUS PURCHASES BY FRAMING ASSESSMENT UNDER SECTION 143(3) READ WITH 153A VIDE ORDER DATED 30.12.2017. 15. THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE AFTER TAKING INTO CONSIDERATION THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 6.8 ON THIS ISSUE, IT WILL BE APT TO REFER TO CERTAIN DECISIONS OF THE HON'BLE GUJARAT HIGH COURT. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT. LTD. 355 ITR 290 (GUJ) WAS BATTLING WITH THE FINDING OF HON'BLE ITAT THAT PURCHASES WERE MADE FROM BOGUS PARTIES. THE TRIBUNAL HAD HELD THAT THROUGH PURCHASES WERE MADE FROM BOGUS PARTIES, NEVERTHELESS, THE PURCHASES WERE NOT AS SUCH 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 SUBJECT TO TAX. THE HON'BLE GUJARAT HIGH COURT HELD THAT WHETHER PURCHASES THEMSELVES WERE BOGUS OR 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 CANNOT BE SUBJECTED TO TAX AND ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO BE TAXED, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE TRIBUNAL. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE GUJARAT HIGH COURT ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY OIL CAKE IND. 316 ITR 274 (GUJ). 6.9 FROM THE AFORESAID DISCUSSION, THE LEGAL POSITION WHICH EMERGES IS THAT IF THERE ARE CORRESPONDING SALES AGAINST THE ALLEGED BOGUS PURCHASES, IT IS ONLY THE PROFIT EMBEDDED IN THE TRANSACTIONS WHICH CAN BE BROUGHT TO TAX AND NOT THE ENTIRE PURCHASES FROM THE ALLEGED BOGUS SUPPLIERS. IN THE INSTANT CASE SINCE THE ASSESSEE HAS DEMONSTRATED BEFORE THE AO AS WELL AS DURING THE APPELLATE PROCEEDINGS THAT THERE ARE CORRESPONDING SALES AGAINST THE ALLEGED BOGUS PURCHASES, ONLY THE EXTRA PROFIT ELEMENT EMBEDDED IN THE TRANSACTIONS CAN BE BROUGHT TO TAX AND NOT THE ENTIRE AMOUNT OF THE ALLEGED BOGUS PURCHASES. 6.10 IT IS WELL KNOWN THAT UNACCOUNTED MATERIAL MAY BE AVAILABLE IN THE MARKET AT MUCH LOWER PRICE AS COMPARED TO THE PURCHASES MADE FROM GENUINE DEALERS ON THE STRENGTH OF GENUINE BILLS. THE REAL SUPPLIERS MAY BE WILLING TO SELL THOSE PRODUCTS AT A MUCH LOWER RATE IN VIEW OF MANIFOLD REASONS. THERE MAY BE SAVINGS ON ACCOUNT OF EXCISE DUTY, SALES-TAX OR OTHER TAXES WHICH MAY BE LEVIABLE IN RESPECT OF MANUFACTURE AND SALE OF SUCH GOODS. THE REAL SUPPLIERS MAY DERIVE SUBSTANTIAL SAVINGS ON ACCOUNT NON-PAYMENT OF GOVERNMENT TAXES WHICH WILL BE SHARED WITH THE WHOLESALERS, DEALERS AND THE END-USERS. THUS, CLEARLY THE PROFIT MARGINS IN RESPECT OF PURCHASES FROM GREY MARKET ARE HIGHER THAN THE PROFIT MARGINS IN RESPECT OF REGULAR PURCHASES. ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 11 6.11 NOW THE ISSUE TO BE ADJUDICATED IS WHAT IS THE REASONABLE PROFIT PERCENTAGE TO BE ADOPTED FOR COMPUTING THE EXTRA PROFITS ARISING FROM THE ALLEGED BOGUS PURCHASES. IT IS PERTINENT TO MENTION THAT THE CBDT THROUGH INSTRUCTION NO. 2/08 DATED 22/02/2008 HAS REVISED THE RATE OF PROFIT MARGIN FROM 8% TO 6% IN RESPECT OF GEMS AND JEWELLERY BUSINESS. THUS, IT CAN BE OBSERVED THAT THE INCOME TAX DEPARTMENT CONSIDERS 6% OF PROFIT MARGIN TO BE REASONABLE FOR THE BUSINESS OF GEMS & JEWELLERY. HOWEVER, THIS MARGIN OF 6% IS REASONABLE FOR AN ASSESSEE WHICH IS NOT INDULGING IN BOGUS PURCHASES. IT HAS BEEN NOTED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SUPRA) THAT THE MARGINS IN RESPECT OF PURCHASES FROM GREY MARKET ARE HIGHER SUE TO SAVINGS ON ACCOUNT OF EVASION OF VARIOUS GOVERNMENT LEVIES. IT IS ALSO NOTED THAT THE PROFIT MARGIN SHOWN BY THE ASSESSEE IN THE YEARS RELEVANT TO AYS 2007-08 & 2008-09 WHICH ARE THE TWO IMMEDIATE YEARS NOT COVERED U/S 153A AND WHEREIN NO ADDITIONS HAVE BEEN MADE ON ACCOUNT OF BOGUS PURCHASES, IS OF 6.30% AND 5.5% RESPECTIVELY. THEREFORE, IT WILL BE APPROPRIATE IF THE REASONABLE PROFIT MARGIN ARISING TO THE ASSESSEE ON ACCOUNT OF THE ALLEGED BOGUS PURCHASES IS ADOPTED TO BE OF 8%. HOWEVER, THE AO WHILE MAKING THE ADDITION ON ACCOUNT OF THE ADDITIONAL PROFIT MARGINS ARISING ON THE SAID BOGUS PURCHASES SHOULD REDUCE THE PROFIT MARGINS ALREADY SHOWN BY THE ASSESSEE IN ITS BOOKS IN RESPECT OF THE SAID BOGUS PURCHASES FROM THE PROFIT MARGIN COMPUTED BY ADOPTING PROFIT MARGIN OF 8%. ACCORDINGLY, GROUND NO. 2 OF THE APPEAL IS PARTLY ALLOWED. 16. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT SINCE THE ASSESSEE HAS FILED THE NECESSARY DOCUMENTS BEFORE THE AO VARIOUS DOCUMENTS COMPRISING QUANTITATIVE DETAILS, COPIES OF PURCHASE AND SALE BILLS, CONFIRMATION FROM THE SUPPLIERS, BANK STATEMENTS, SHIPPING BILLS AND PROOF OF RECEIPTS FROM EXPORTS ETC. THE LD. AR, THEREFORE, SUBMITTED THAT NO ADDITION IS REQUIRED TO BE MADE. IN DEFENCE OF HIS ARGUMENTS THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS : CIT V/S M/S NIKUNJ EXIMP ENTERPRISES PVT. LTD. (BOM) 372 ITR 619 BABULAL BORANA V/S ITO 282 ITR 251 (BOM) PRI. CIT VS. MOHOMMAD HAJI ADAM & CO. & ORS. 104 CCH 0391 MUM HC PRIN.CIT V/S CHAWLA INTERBILD CONSTRUCTION PVT LTD. 412 ITR 152 (BOM) 17. THE LD. A.R. ALSO SUBMITTED THAT SINCE THE ADDITION WAS MADE BY THE AO AND PARTLY SUSTAINED BY THE LD. CIT(A) BY IGNORING THE FACT THAT NO CROSS EXAMINATION WAS ALLOWED OF THE PARTY MR. BHANWARLAL JAIN AND RELATED PARTIES TO THE ASSESSEE AND THEREFORE THEIR STATEMENTS CAN NOT BE RELIED TO MAKE ADDITION AS THE SAME IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 12 IN DEFENCE OF HIS ARGUMENTS THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS: PRAKASH CHANDRA NAHTA V/S UNION OF INDIA 247 ITR 274 (S.C.) MEHTA PARIKH & CO. V/S CIT 30 ITR 181 {S.C) M/S R.W. PROMOTIONS PVT. LTD. V/S ACIT (BOM) ITA NO. 1489 OF 2013 DATED 13/7/2015 18. THE LD. A.R. ALSO SUBMITTED THAT SINCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT REJECTED AND NO CROSS EXAMINATION WAS ALLOWED AND THEREFORE NO ADDITION OR DISALLOWANCE CAN BE MADE AS HAS BEEN HELD IN THE CASE OF FANCY WEAR VS. ITO 194 TTJ 125 MUMBAI, SHREE GANPATRAO A SANGHAVI VS ACIT ITA. 2826/MUM/2013, ITO VS DEEPAK GALA ITA NO.5920/MUM/2013, DCIT VS RAJAN G KALATHIL ITA NO.6727/MUM/2012 AND RAMESH KUMAR & CO VS ACIT ITA NO. 2959/MUM/2013. 19. THE LD. D.R., ON THE OTHER HAND, RELIED HEAVILY ON THE ORDER OF LD. CIT(A) BY SUBMITTING THAT A VERY BALANCED VIEW HAS BEEN TAKEN BY LD CIT(A) BY DIRECTING THE ADDITION @ 8% OF THE BOGUS PURCHASES IN ORDER TO BRING TO TAX THE PROFIT ELEMENT EMBEDDED IN THE SAID BOGUS PURCHASES. 20. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE IS UNDISPUTEDLY BENEFICIARY OF BOGUS PURCHASE ENTRIES FROM THE CONCERNS RELATED TO BHANWARLAL JAIN GROUP. WE ALSO NOTE THAT ASSESSEE HAS FURNISHED ALL THE NECESSARY EVIDENCES AS STATED HEREINABOVE BEFORE THE AO AND LD. CIT(A) TO EXPLAIN THE GENUINENESS OF THE PURCHASES. WE ALSO NOTE THAT THE STATEMENTS OF VARIOUS PERSONS BELONGING TO BHANWARLAL JAIN GROUP HAVE BEEN RELIED UPON BY THE AO TO MAKE THE ADDITION WITHOUT ALLOWING CROSS EXAMINATION ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 13 OF THESE PARTIES AND THAT TOO WITHOUT REJECTING THE BOOKS OF ACCOUNTS. MOREOVER ALL THESE STATEMENTS HAVE BEEN RETRACTED POST SEARCH. WE NOTE THAT LD CIT(A) PARTLY SUSTAINED THE ADDITION AT 8% OF THE TOTAL BOGUS PURCHASES MINUS GROSS PROFIT DECLARED BY THE ASSESSEE WHILE RELYING ON THE INSTRUCTION NO. 2 OF 2008 DATED 22.08.2008 WHEREIN THE DBDT HAS DIRECTED ALL THE AOS CONCERNED TO ACCEPT THE PROFIT @ 6% IN DIAMOND BUSINESS. WE ACCORDINGLY MODIFY THE ORDER OF LD CIT(A) AND DIRECT THE AO TO APPLY A RATE OF 6% OF BOGUS PURCHASES MINUS GP ALREADY DECLARED BY THE ASSESSEE. GROUND NO. 4 IS PARTLY ALLOWED. 21. GROUND NO.7 IS AGAINST THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1) OF THE ACT AND GROUND NO.8 IS A GENERAL GROUND AND REQUIRE NO ADJUDICATION. 22. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1827/M/2019 A.Y. 2015-16 23. THE ISSUE RAISED IN GROUND NO.4,5 & 6 IS AGAINST THE DIRECTION OF LD. CIT(A) TO APPLY GP RATE OF 10% ON THE UNACCOUNTED SALES THEREBY PARTLY ALLOWING THE APPEAL AS AGAINST 100% ADDITION OF UNACCOUNTED SALES OF RS.3,00,33,316/- BY THE AO. 24. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF SEARCH IT WAS FOUND THAT ASSESSEE HAS MADE SOME SALES WHICH WERE NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND ACCORDINGLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO, AFTER TAKING INTO ACCOUNT THE REPLY OF THE ASSESSEE, CAME TO CONCLUSION ON THE BASIS OF FINDINGS OF THE SEARCH TEAM AND STATEMENT RECORDED OF MRS. TRUPTI SHAH THAT THE UNACCOUNTED SALES OF THE ASSESSEE, ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 14 ON THE BASIS OF ACCOUNT MAINTAINED WITH NATWARCHINU, WERE RS.3,00,33,316/- AND SAME WERE ADDED TO THE INCOME OF THE ASSESSEE BY FRAMING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 153A OF THE ACT VIDE ORDER DATED 13.03.2017. 25. IN THE APPELLATE PROCEEDINGS THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY DIRECTING THE AO TO APPLY A PROFIT RATE OF 10% ON THE UNACCOUNTED SALES BY OBSERVING AND HOLDING AS UNDER: 6.12 AS NOTED ABOVE, THE AO WHILE COMPUTING THE TOTAL UNACCOUNTED SALES OF RS. 22,94,64,316/~ HAS ALSO INCLUDED THE UNACCOUNTED PURCHASES MADE BY THE ASSESSEE THROUGH ANGADIA, NATWARLAL CHINUBHAI & CO., OF RS. 2,42,76,000;- WHICH RELATES TO AY 2016-17, WHICH IS NOT CORRECT. ACCORDINGLY, THE TOTAL UNACCOUNTED SATES OF THE ASSESSEE NEED TO BE RECOMPUTED AFTER REDUCING THESE UNACCOUNTED PURCHASES. HOWEVER, THE AO SHOULD EXAMINE THE COMPUTATION PROVIDED BY THE ASSESSES IN RESPECT OF THE SAID UNACCOUNTED PURCHASES OF RS 2,42,76,000/- THROUGH THE ANGADIA, NATVARLAJ CHINUBHAI & CO, AS PER THE FILES FOUND ON THE PENDRIVES SEIZED. THE ASSESSES ALSO CONTENDS THAT THE BALANCE ENTRIES ON THE FILES FOUND ON THE SAID PENDRIVES ALSO INCLUDE A NUMBER OF PURCHASE TRANSACTIONS WHICH ALSO HAVE BEEN WRONGLY CONSIDERED BY THE AO WHILE COMPUTING THE TOTAL UNACCOUNTED SALES. HOWEVER, THE BALANCE ENTRIES HAVE BEEN EXPLAINED BY MS TRUPTI SHAH DURING THE SEARCH ACTION OR IN THE ASSESSMENT PROCEEDINGS OR EVEN IN THE PRESENT APPELLATE PROCEEDINGS. THEREFORE THE PURCHASES ALLEGEDLY REFLECTED IN THE SAID BALANCE ENTRIES IN THE FILES FOUND ON THE SEIZED PENDRIVES, CANNOT BE ALLOWED TO BE REDUCED WHILE COMPUTING THE TOTAL UNACCOUNTED SALES OF THE ASSESSEE. ACCORDINGLY, THE TOTAL UNACCOUNTED SALES ARE RECOMPUTED AT RS.20,51,88,316/- AFTER ONLY REDUCING THE UNACCOUNTED PURCHASES THROUGH THE ANGADIA, NATVARLAL CHINUBHAI & CO. AND OUT OF THESE TOTAL UNACCOUNTED SALES, RS. 3,00 , 33,316/- RELATES TO THE RELEVANT YEAR. IT IS NOTED THAT THOUGH THERE IS LITTLE DOUBT THAT THE EVIDENCES FOUND IN POSSESSION OF MS TRUPTI SHAH ALSO HAVE DETAILS OF THE UNACCOUNTED PURCHASES, HOWEVER, IT IS NOT POSSIBLE TO EXACTLY QUANTIFY THE UNACCOUNTED PURCHASES AND THEREFORE, THE INCOME ARISING TO THE ASSESSEE FROM THE UNACCOUNTED TRANSACTIONS ONLY BE REASONABLY ESTIMATED. 6.13 NOW, THE ISSUE TO BE ADJUDICATED IS WHAT CAN BE CONSIDERED TO BE THE REASONABLE PROFIT MARGIN ARISING FROM THE SAID UNRECORDED SALES CARRIED OUT BY THE ASSESSEE THROUGH THE ANGADIAS. IN THIS CONTEXT, IT IS RELEVANT TO MENTION THAT THE CBDT THROUGH INSTRUCTION N O. 2/08 DATED 22/02/2008 HAS REVISED THE RATE OF PROFIT MARGIN FROM 8% TO 6% IN RESPECT OF GEMS AND JEWELLERY BUSINESS. THUS, IT CAN BE OBSERVED THAT THE INCOME TAX DEPARTMENT CONSIDERS 6% OF PROFIT MARGIN TO BE REASONABLE FOR THE BUSINESS OF GERNS & JEWELLERY, HOWEVER, THIS MARGIN OF 6% IS REASONABLE FOR AN ASSESSEE WHICH IS NOT INDULGING IN UNACCOUNTED TRANSACTIONS. IT IS ALSO NOTED THAT THE PROFIT MARGIN SHOWN BY THE ASSESSEE IN THE YEARS RELEVANT TO AYS ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 15 2007-08 & 2008-09 WHICH ARE THE TWO IMMEDIATE YEARS NOT COVERED U/S 153A AND WHEREIN NO ADDITIONS HAVE BEEN MADE ON ACCOUNT OF BOGUS PURCHASES/SATES, IS OF 6.30% AND 5.5% RESPECTIVELY,. IT HAS BEEN NOTED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SUPRA) THAT THE MARGINS IN RESPECT OF PURCHASES FROM GREY MARKET ARE HIGHER DUE TO SAVINGS ON ACCOUNT OF EVASION OF VARIOUS GOVERNMENT LEVIES, IN THE CASE OF THE ASSESSEE, FOR THE RELEVANT YEARS WHEREIN IT WAS FOUND TO HAVE MADE BOGUS / HAWALA PURCHASES FROM THE CONCERNS OF SHRI BHANWARLAL JAIN, THOUGH THE CORRESPONDING SALES WERE DULY REFLECTED IN THE REGULAR BOOKS, A PROFIT MARGIN OF 8% WAS CONSIDERED TO BE REASONABLE AND A SET OFF OF PROFIT ALREADY SHOWN IN THE BOOKS WAS ALLOWED, IN THE INSTANT CASE, CONSIDERING THAT BOTH THE PURCHASES AS WELL AS SALES HAVE NOT BEEN RECORDED IN THE REGULAR BOOKS AND HAVE MADE IN THE GREY MARKET, IT WILL BE APPROPRIATE IF THE REASONABLE PROFIT MARGIN ARISING TO THE ASSESSEE IS ADOPTED TO BE OF A HIGHER FIGURE OF 10%, MOREOVER, SINCE THE PURCHASE AS WELL AS SALES HAVE NOT BEEN RECORDED IN THE REGULAR BOOKS, THE QUESTION OF ALLOWING SET OFF OF PROFIT SHOWN IN THE BOOKS DOES NOT ARISE. THE AO IS THEREFORE DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE FROM THE UNACCOUNTED SALES OF RS. 3,00,33,316/- AT RS.30,03,332/- BY ADOPTING A PROFIT MARGIN OF 10%. ACCORDINGLY, GROUND NO 2 OF THE APPEAL IS PARTLY ALLOWED. 26. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT UNDISPUTEDLY THE ASSESSEE HAS MADE UNACCOUNTED SALES WHICH HAS BEEN BROUGHT ON RECORD BY THE SEARCH TEAM AS WELL AS IN THE ASSESSMENT PROCEEDINGS BY THE AO. THE AO ADDED THE ENTIRE SALES TO THE INCOME OF THE ASSESSEE WHICH WAS REDUCED BY THE LD. CIT(A) BY DIRECTING A RATE OF 10% TO ASSESS THE PROFIT MARGIN ON THE SAID SALES. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THE AVERAGE GP FOR THE PREVIOUS THREE YEARS COMES TO 5.42% AND IT WILL BE THE MOST REASONABLE TO ASSESS THE PURCHASES ON THE SAID RATE INSTEAD OF 10% WHICH IS EXCESSIVE AND UNREASONABLE KEEPING IN VIEW THE LINE OF BUSINESS OF THE ASSESSEE. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT UNACCOUNTED SALES HAS TO BE ASSESSED AT THE PROFIT RATE WHICH IS PREVALENT IN THE BUSINESS OF THE ASSESSEE. SINCE THE AVERAGE GP IS 5.42%, THEREFORE WE ARE INCLINED TO MODIFY THE ORDER OF LD. CIT(A) TO APPLY A RATE OF 5.42% ON THE UNACCOUNTED SALES. THE ORDER OF LD. CIT(A) ON THIS ISSUE STANDS MODIFIED TO THIS EXTENT. THE GROUND IS PARTLY ALLOWED ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 16 27. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1828/M/2019 A.Y. 2016-17 28. THE ISSUE RAISED IN GROUND NO.2 & 3 IS AGAINST THE CONFIRMATION OF ADDITION OF RS.6,72,497/- BY LD. CIT(A) AS MADE BY THE AO ON ACCOUNT OF UNEXPLAINED SILVER AND AMERICAN DIAMOND OF RS.6,72,497/-. 29. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF SEARCH, THE SEARCH PARTY FOUND 10 SILVER BARS, MISCELLANEOUS SILVER AND AMERICAN (SMALL AND BIG SIZE, WHITE AND COLOUR DIAMONDS) AT THE OFFICE PREMISES OF MIRAJ CREATIONS VALUING AT RS.6,72,497/- AT SUN VILLE BUILDING, PAPER MILL COMPOUND OPPOSITE GREENS RESTAURANT, LAMINGTON ROAD, GRANT ROAD, MUMBAI 4 MR. SUNIL RAJARAM GHAG STATED THAT HE IS NOT AWARE OF THE BUSINESS ACTIVITIES OF MIRAJ CREATIONS AND NOT MAINTAINING THE BOOKS. THEREAFTER, DURING THE POST SEARCH PROCEEDINGS SUMMONS WERE ISSUED TO MIRAJ CREATIONS AND THE FIRM WAS ASKED TO FURNISH THE BOOKS OF ACCOUNTS AND EXPLAIN WHETHER THESE ITEMS ARE RECORDED IN THE BOOKS OF ACCOUNTS. HOWEVER, THE REPRESENTATIVE OF THE ASSESSEE FAILED TO PROVIDE ANY DOCUMENTARY EVIDENCES. THE FIRM MIRAJ CREATIONS WAS CLOSED IN A.Y. 2012-13. IN RESPONSE TO SHOW CAUSE NOTICE TO MIRAJ CREATIONS IT WAS STATED THAT THESE ITEMS WERE SOLD TO M/S. SUR GEMS THE ASSESSEE DURING 2012-13 BEING THE LAST YEAR OF OPERATION THE AO DURING THE COURSE OF ASSESSMENT EXAMINED THE BOOKS OF ACCOUNTS AND STOCK REGISTER AND CAME TO CONCLUSION THAT THESE ITEMS WERE NOT RECORDED AND ACCORDINGLY CAME TO CONCLUSION THAT THESE ARE UNEXPLAINED INVESTMENTS AND ADDED THE SAME UNDER SECTION 69A. ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 17 30. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY OBSERVING AND HOLDING AS UNDER: 9.1 IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SHOW CAUSE AND EXPLAIN AS TO WHY THE SAID VALUABLES OF RS 6,72,497/- SHOULD NOT BE CONSIDERED AS UNEXPLAINED AND ADDED U/S 69A. IN RESPONSE, IT WAS SUBMITTED THAT THE SAID VALUABLES HAVE BEEN SOLD BY M/S MIRAGE CREATIONS TO M/S SUR GEMS IN THE YEAR RELEVANT TO AY 2012-13. THE ASSESSEE SUBMITTED DOCUMENTARY EVIDENCES IN THE FORM OF INVOICES, PROOF OF PAYMENT, ETC. HOWEVER, THE AO NOTED THAT THESE ITEMS ARE NOT REFLECTED IN THE STOCK REGISTER OF THE ASSESSEE. THE AO THEREFORE, PROCEEDED TO MAKE AN ADDITION OF RS.6,72,497/- U/S 69A. 9.2 IN THE APPELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT ALL THE NECESSARY DOCUMENTARY EVIDENCES IN THE FORM OF PURCHASE INVOICES, PROOF OF PAYMENT, ETC. WERE SUBMITTED TO THE AO IN THE ASSESSMENT PROCEEDINGS TO DEMONSTRATE THAT THE ASSESSEE HAD PURCHASED THE SAID VALUABLES FROM M/S. MIRAGE CREATIONS AND THEREFORE, THE SAID ADDITION MADE BY THE AO OF RS.6,72,497/- IS NOT CORRECT. 9.3 THE CONTENTIONS OF THE ASSESSEE HAVE BEEN DULY CONSIDERED. IT IS OBSERVED THAT THE AO NOTED THAT THE SAID VALUABLES VALUED AT RS 6,72,497/- ARE NOT REFLECTED IN THE STOCK REGISTER OF THE ASSESSEE. IT IS A FACT THAT THE BOOKS OF ACCOUNTS OF M/S MIRAGE CREATIONS WERE NEITHER PRODUCED AT THE TIME OF THE SEARCH ACTION NOR BEFORE THE AO OR EVEN IN THE APPELLATE PROCEEDINGS. FURTHER, FROM THE TAX AUDIT REPORT OF THE ASSESSEE FOR THE YEAR RELEVANT TO AY 2012-13, IT IS OBSERVED THAT IN RESPECT OF THE CLAUSE FOR RELATED PARTY TRANSACTIONS, THE SAID PURCHASES FROM M/S MIRAGE CREATIONS HAVE NOT BEEN REPORTED. MOREOVER, EVEN IN THE QUANTITATIVE DETAILS PROVIDED IN THIS TAX AUDIT REPORT OF THE ASSESSEE FOR A.Y. 2012-13, THERE IS NO MENTION OF ANY PURCHASE OF SILVER ITEMS, AMERICAN DIAMONDS, ETC. THUS, THE CONTENTION OF THE ASSESSEE THAT THE SAID VALUABLES OF RS 6,72,497/- WERE PURCHASED FROM M/S MIRAGE CREATION IN THE YEAR RELEVANT TO AY 2012-13 IS FOUND TO BE NOT CORRECT. THEREFORE, NO INFIRMITY IS FOUND IN THE ACTION OF THE AO IN MAKING THE SAID ADDITION OF RS 8,72,497/- U/S 69A IN RESPECT OF THE SAID UNEXPLAINED SILVER BARS, AMERICAN DIAMONDS, ETC. ACCORDINGLY, GROUND NO.5 OF THE APPEAL IS DISMISSED. 31. THE LD. A.R. SUBMITTED BEFORE THE BENCH THAT THESE ITEMS OF SILVER AND DIAMONDS WERE PURCHASED FROM MIRAJ CREATIONS A FIRM SISTER CONCERN WHICH WAS DISALLOWED IN A.Y. 2012-13. THE LD. A.R. SUBMITTED THAT COPY OF BILLS, VOUCHERS AND PAYMENT PROOFS WERE FURNISHED BEFORE THE AO AND LD. CIT(A). THE LD. A.R. SUBMITTED THAT THE SOLE REASON FOR MAKING THE ADDITION WAS THAT IT WAS NOT SHOWN IN THE STOCK REGISTER NOR IN THE TAX AUDIT REPORT. THE LD. A.R. SUBMITTED THAT THIS IS A CLERICAL MISTAKE BUT ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 18 THE FACT IS THERE THAT INVOICE AND PERMISSION PROOF IS PRODUCED WHICH IS AVAILABLE AND CLINCHING EVIDENCE. THE LD. A.R. SUBMITTED THAT THIS IS NOT A CASE OF BOGUS PURCHASE IT IS A CASE OF PURCHASES FROM A SISTER CONCERN FOR WHICH INVOICE WAS AVAILABLE AND PAYMENT THROUGH BANKING CHANNEL WERE ALSO MADE, THEREFORE THE ADDITION SUSTAINED BY THE LD. CIT(A) IS NOT CORRECT AND MAY KINDLY BE DELETED. 32. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF LD. CIT(A). 33. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ASSESSEE HAS NOT RECORDED THE ITEM IN THE STOCK REGISTER AND THE AUDITOR HAS ALSO NOT REPORTED THE PURCHASES FROM THE SISTER CONCERN IN THE TAX AUDIT REPORT. AFTER PERUSING THE RECORDS, WE ACCEPT THE CONTENTIONS AND PLEAS OF THE ASSESSEE THAT THIS IS GENUINE PURCHASE AS THE SAME IS EVIDENCED BY THE INVOICE OF PURCHASE AND PAYMENT BY ACCOUNT PAYEE CHEQUE TO M/S MIRAH CREATIONS. THEREFORE WE ARE NOT IN AGREEMENT WITH THE CONCLUSION OF THE LD CIT(A) ON THIS ISSUE. ACCORDINGLY, WE ARE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITION. THE GROUND NOS 2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED. 34. GROUND NO.1 IN ITA NO.1823/M/2019, ITA NOS.1825, 1826 & 1827/M/2019 ARE NOT PRESSED AT THE TIME OF HEARING AND ARE DISMISSED AS NOT BEING PRESSED. 35. THE ISSUE RAISED IN GROUND NOS.2 & 3 IN ITA NO.1823, 1824, 1825, 1826 & 1827/M/2019 ARE IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO.3, 4 & 5 IN ITA NO.1822/M/2019 ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 19 A.Y. 2009-10 WHEREIN WE HAVE DELETED THE ADDITION MADE ON ADHOC BASIS AND ON SURMISES WITHOUT ANY BASIS. OUR FINDING ON GROUND NO.3, 4 & 5 IN ITA NO.1822/M.2019 WOULD, MUTATIS MUTANDIS, APPLY TO THE GROUNDS RAISED IN THE ABOVE APPEALS AS WELL. ACCORDINGLY, THE ISSUE OF ADDITION ON ACCOUNT OF LABOUR CHARGES IS ORDERED TO BE DELETED IN ALL THE ABOVE APPEALS. THE AO IS DIRECTED ACCORDINGLY AND GROUNDS IN THE ABOVE APPEALS IN VARIOUS ASSESSMENT YEARS ARE ALLOWED. ITA NO.1826/M/2019 A.Y. 2014-15 36. THE ISSUE RAISED IN GROUND NO.4, 5 & 6 IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO.4, 5 & 6 IN ITA NO.1825/M/2019 A.Y. 2013-14 WHEREIN WE HAVE DIRECTED THE DELETION OF ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES. OUR FINDING ON GROUND NO.4, 5 & 6 WOULD MUTATIS MUTANDIS APPLY TO GROUND NO.4, 5 & 6 IN ITA NO.1826/M/2019 AND ACCORDINGLY THE FINDINGS ON THIS ISSUE BY LD. CIT(A) IS MODIFIED AND AO IS DIRECTED TO MAKE ADDITION EQUAL TO 6% OF THE BOGUS PURCHASES MINUS GP DECLARED BY THE ASSESSEE. CONSEQUENTLY THE GROUND NOS 4,5 AND 6 ARE ALLOWED. ITA NO.1828/M/2019 A.Y. 2016-17 37. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 IN ITA NO.1828/M/2019 A.Y. 2016-17 IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO.4,5 & 6 IN ITA NO.1827/M/2019 A.Y. 2015-16 WHEREIN WE HAVE MODIFIED THE ORDER OF LD. CIT(A) DIRECTING THE AO TO APPLY A PROFIT MARGIN OF 5.42% ON THE UNACCOUNTED SALES. OUR FINDING ON GROUND NO.4,5 & 6 IN ITA NO.1827/M/2019 A.Y. 2015-16 WOULD MUTATIS MUTANDIS APPLY TO GROUND NO.1 IN ITA NO.1828/M/2019 A.Y. 2016-17 AND ACCORDINGLY AO IS DIRECTED ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 20 TO APPLY A PROFIT MARGIN OF 5.42% ON THE UNACCOUNTED SALES. THE GROUND NO.1 IS PARTLY ALLOWED. 38. THE ISSUE RAISED IN REVENUES APPEAL IN ITA NO.2079/M/2019 A.Y. 2011-12, ITA NO.2080/M/2019 A.Y. 2012-13, ITA NO.2081/M/2019 A.Y. 2013-14, ITA NO.2082/M/2019 A.Y. 2014-15, ITA NO.2083/M/2019 A.Y. 2015-16 & ITA NO.2084/M/2019 A.Y. 2016-17 ARE AGAINST THE ORDER OF LD. CIT(A) PARTLY ALLOWING THE APPEAL OF THE ASSESSEE QUA THE ADDITION MADE ON ACCOUNT OF BOGUS LABOUR CHARGES BY DIRECTING THE AO TO APPLY 3.91%. SINCE WE HAVE ALREADY DECIDED THE ISSUE IN ASSESSEES APPEAL WHEREIN THE ASSESSEE HAS CHALLENGED THE PART CONFIRMATION OF ADDITION ON ACCOUNT OF LABOUR CHARGES @ 3.91% BY THE LD. CIT(A) WHICH WE HAVE ALREADY DELETED IN THE ASSESSEES APPEALS. CONSEQUENTLY, THESE APPEALS OF THE REVENUE BECOME INFRUCTUOUS AND ARE DISMISSED. 39. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.2020. SD/- SD/- ( RAM LAL NEGI) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28.12.2020. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH ITA NO.2078/M/2019 & ORS M/S. SUR GEMS 21 //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.