ACIT-10(1)(1), MUMBAI V. INTER CARAT JEWELLERY PRIVATE LIMITED, MUMBAI

ITA 2110/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2435 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 05-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Keywords: Reopening of assessment; Bogus purchase; Tangible material; Accommodation entries
• Section: 147; 69; 143(3); 143(1); 250

Judgement Text

AAYAK AAYAK AAYAK AAYAKR APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQAKRNA N AKRNA N AKRNA N AKRNA NYAAYAPIZ YAAYAPIZ YAAYAPIZ YAAYAPIZ MAMUBA[ MAMUBA[ MAMUBA[ MAMUBA[- -- - MAO MAOMAO MAO. .. . IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SRI G.S.PANNU, VICE PRESIDENT AND SHRI MAHAV IR SINGH, JM AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SAM MM M . / ITA NO.2110/MUM/2018 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2013-14) ACIT -10(1)(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI. VS. INTER CARAT JEWELLERY PVT LTD., PLOT NO.19, INTER CARAT ROAD NO.09, ANDHERI (EAST), MUMBAI , ( APILAAQA APILAAQA APILAAQA APILAAQAI II I - -- - / APPELLANT) .. ( P` P`P` P`%YAQAA %YAQAA %YAQAA %YAQAAI II I- -- - / RESPONDENT) PAN NO. AABCI 1023 K AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM . / ITA NO.1626/MUM/2018 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2013-14) INTER CARAT JEWELLERY PVT LTD., PLOT NO.19, INTER CARAT ROAD NO.09, ANDHERI (EAST), MUMBAI. VS. ACIT -10(1)(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI. ( APILAAQAI APILAAQAI APILAAQAI APILAAQAI - -- - / APPELLANT) .. ( P`%YAQAAI P`%YAQAAI P`%YAQAAI P`%YAQAAI- -- - / RESPONDENT) PAN NO. REVENUE BY : SHRI RAJEEV GUBGOTRA, DR ASSESSEE BY : SHRI PRAKASH JOTWANI AR DATE OF HEARING: 22.2.2019 DATE OF PRONOUNCEMENT : 13- - 03- 2019 AADOSA AADOSA AADOSA AADOSA / O R D E R PER MAHAVIR SINGH, JM: 2 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 THE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE A RE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-17, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO. CIT(A)-17/IT-84/10847/ 16-17 DATED 12.1.2018. THE ASSESSMENT WAS FRAMED BY THE ACIT(A) (1)(1), MUMBAI FOR THE A.Y. 2013-14 VIDE ORDER DATED 14.12.2017 UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (HEREI NAFTER THE ACT). 2. THE ONLY COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF THE CIT(A) RESTRICTING THE DISALLOW ANCE TO 12.5% OF THE TOTAL BOGUS PURCHASES MADE FROM M/S.KRISHNA DIA M AS AGAINST THE TOTAL BOGUS PURCHASE ADDED BY THE ASSESSING OFF ICER. FOR THIS, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION VIDE THE FOLLOWING GROUNDS: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS. 1,31,42,840/- MADE ON ACCOUNT OF DISALLOWANCE OF NO N-GENUINE PURCHASES TO 12.5% OF THE ALLEGED PURCHASES DESPITE UPHOLDING THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO ESTA BLISH THE GENUINENESS OF PURCHASES AND HAS ONLY OBTAINED ACCOMMODATION BILLS FOR PURCHASES WITHOUT ACTUALLY RECEIVING ANY GOODS, WHICH CALLS FOR ADDITION OF ENTIRE AMOUN T OF NON- GENUINE PURCHASES' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE DECISI ON IN THE CASE OF N.K. INDUSTRIES LTD. 292 CTR (GUJ) 354)|SLP DISM ISSED 250 TAXMAN 22(SC)] , WHEREIN IT IS HELD THAT ADDITION O N THE BASIS OF UNDISCLOSED INCOME COULD NOT BE RESTRICTED TO CERTA IN PERCENTAGE WHEN THE ENTIRE TRANSACTION WAS FOUND AS BOGUS.' 3 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 3. THE ASSESSEE HAS ALSO CHALLENGED THE RESTRICTION OF DISALLOWANCE AND ALSO REQUESTED FOR ESTIMATION MADE RANGING BETWEEN 1 TO 2% VIDE THE FOLLOWING THREE GROUNDS: 1) THE LEARNED CIT(APPEAL) ERRED IN CONFIRMING RE-A SSESSMENT WHEN THE ASSESSING OFFICER HAD BY THE ASSESSMENT OR DER DATED 26.12.2016 REOPENED THE CASE FOR THIS YEAR ON THE S AME FACTS AND THE SAME RELATED PARTY THEREBY MAKING A CASE OF CHANGE IN OPINION AND NOT A CASE OF FRESH TANGIBLE MATERIAL L EADING NON DISCLOSURE OF FACTS AND INCOME. 2) THE LEARNED CIT(APPEAL) ERRED IN CONFIRMING DISA LLOWANCE AT 12.5% OF TOTAL PURCHASES OF RS.1,31,42,840/- MADE F ROM M/S KRISHNA DIAMAS BOGUS PURCHASES. HOWEVER, THE LEARNE D CIT (APPEAL) OUGHT TO HAVE APPRECIATED THAT THE APPELLA NT HAD FURNISHED FULL AND COMPLETE DETAILS OF THE PURCHASE S AND HAD DISCHARGED THE ONUS OF PROVING GENUINENESS OF THE T RANSACTIONS. ALSO, THE LEARNED CIT (APPEAL) OUGHT TO ACCEPT THE FACT, THAT THERE CAN BE NO SALES WITHOUT PURCHASES AND THAT ON THE SAID PURCHASE OF DIAMONDS, THERE HAS BEEN A SALE TOO WHI CH HAS BEEN ASSESSED TO TAX.; WHEN THE SALES OF THE APPELL ANT ARE FULLY ALLOWED THE PURCHASES MADE FROM THE ABOVE PARTY CAN NOT BE QUESTIONED. 3) THE LEARNED CIT(APPEAL) HAS ERRED IN NOT RE LYING ON INSTRUCTION NO.2/2008 OF CBDT, TASK FORCE REPORT ON DIAMOND SECTOR SUGGESTING THAT THE PROFIT MARGIN IN TRADING IN DIAMOND SHOULD BE BETWEEN THE RANGE OF 1% TO 3% AND HENCE E STIMATION OF 12.5% OF PURCHASES IS UNJUST AND OUGHT TO BE DEL ETED IN FULL. 4) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE A PPELLANT. 4. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE, AS R EGARDS TO GROUND RAISED IN GROUND NO.1 OF APPEAL REGARDING ASSUMPTION OF JURIS DICTION BY THE ASSESSING OFFICER FOR REOPENING OF ASSESSMENT, STATED THAT HE IS NOT ARGUING THIS ISSUE AND ONLY ARGUING THAT HIGHER PROFIT RATE APPLIED BY THE ASSESSING OFFICER IS UNREASONABLE. HENCE, GROUND NO.1 OF APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 4 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 5. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I N THE RELEVANT ASSESSMENT YEAR 2013-14 FILED THE RETURN OF INCOME ON 30.5.201 5 AND THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQU ENTLY, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION.148 OF THE ACT AND REOP ENED THE ASSESSMENT ON THE BASIS THAT DOCUMENTS FORWARDED BY THE DGIT(INV), MU MBAI, WHEREIN, IT IS FOUND THAT THE ASSESSEE HAS OBTAINED ACCOMMODATION ENTRIE S OF BOGUS PURCHASES FROM THE VARIOUS CONCERN OF GAUTAM JAIN GROUP DURI NG THE FINANCIAL YEAR 2012- 13 RELEVANT TO THE ASSESSMENT YEAR 2013-14. THE BO GUS ENTRY OF PURCHASES OF DIAMOND OBTAINED FROM KRISHNA DIAM WAS FOR AN AMOUN T OF 1,31,42,840/- BY THE ASSESSEE. THIS REOPENING WAS DONE ON THE BASIS THAT A SEARCH CONDUCTED BY THE INCOME TAX DEPARTMENT UNDER SECTION.132 OF T HE ACT ON GAUTAM JAIN GROUP ON 6.10.2013 REVEALED THAT GAUTAM JAIN GROU P ARE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES IN THE NATURE OF BO GUS UNSECURED LOANS,/BOGUS PURCHASES. GAUTAM JAIN ON OATH STATED UNDER SECTIO N.132 OF THE ACT ON 6.10.2013 THAT HE IS THE DIRECTOR IN M/S. KRISHNA DIAMOND PVT LTD, AND PARTNER IN M/S. KRISHNA DIAM, WHO HAVE PROVIDED THIS ACCOMMODA TION BOGUS PURCHASE BILLS TO THE ASSESSEE AND WHO IS ONE OF THE PARTY P ROVIDING BOGUS ENTRIES. THE STATEMENT OF GAUTAM JAIN IS ENTIRELY REPRODUCED IN THE ASSESSMENT ORDER UNDER SECTION.132(4) OF THE ACT. IN VIEW OF ABOVE, THE A SSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ISSUED NOTICE UND ER SECTION.133(6) OF THE ACT. HOWEVER SAME ARE RETURNED UNSERVED. THE ASSE SSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE PURCHASES MADE FROM KRISHNA DIAM AND IN TERMS, THE ASSESSEE FILED EVIDENCES OF THE TRANSACTIONS MADE I .E. PURCHASE BILLS, VOUCHERS, PAYMENT MADE THROUGH A/C PAYEE CHEQUE AND STOCK REG ISTER FOR EXAMINATION BUT THE ASSESSEE PRODUCED THESE DETAILS EXCEPT STOCK ST ATEMENT AND MODE OF 5 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 TRANSPORTATION OF GOODS. AS THE ASSESSEE COULD NOT PRODUCE STOCK STATEMENT FOR EXAMINATION OF THE ASSESSING OFFICER, HE DREW INFER ENCE THAT PURCHASES TO THE EXTENT MADE FROM KRISHNA DIAM AMOUNTING TO 1,31,42,840/- IS BOGUS PURCHASES AND HE DISALLOWED THE ENTIRE AMOUNT. AGG RIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 6. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS AND TRADE RESULTS OF THE ASSESSEE COMPANY FOR VARIOUS YEARS I.E. A.YS. 2009-10 TO 2013-14 NOTED THAT ON IDENTICAL FACTS AN D CIRCUMSTANCES, THE TRIBUNAL HAS ESTIMATED THE PROFIT RATE AT 3% AND HENCE, HE R ESTRICTED THE DISALLOWANCE AT 12.5% BY OBSERVING IN PARAS 4.1.6 OF HIS ORDER AS U NDER: 4.1.6 NOW IN THE BACKGROUND OF THE ABOVE DECISION OF THE HONBLE TRIBUNAL THE TRADE RESULTS OF THE APPELLANT COMPANY FOR VARIOUS YEARS ARE EXAMINED. A.Y. TURNOVER G.P. N.P. G.P% N.P% 2009-10 587,219,238 52,860,116 9,860,116 9 1.68 2010-11 474,467,750 40,837,834 9,003,909 8.61 1.89 2011-12 928,906,765 53,779,057 18,130,249 5.79 1.95 2012-13 1,210,821,514 80,979,272 20,452,098 6.69 1.69 2013-14 1,355,223,124 83,486,461 22,332,945 6.16 1.65 FROM THE ABOVE TABLE, IT IS SEEN THAT THE APPELLANT COMPANY HAS ALWAYS SHOWN THE GROSS PROFIT HIGHER THAN 6% EXCEPT FOR A. Y. 2011-12 WHICH IS ALSO AROUND 6% I.E. 5.92%. EVEN THE TASK FORCE FOR DIAMOND SECTOR SUBMITTED ITS REPORT TO THE DEPARTMENT OF COMMERCE, HAS ALSO SUGGESTED THAT THE PROFIT MARGIN IN TRADING IN DIAMOND SHOULD BE BETWEEN THE RANGE OF 1% TO 3% AND FOR MANUFACTURING IT SHOULD BE 1.5% TO 4.5%. IN THE BACKGROUND OF DECISION OF THE HON'BLE TRIBUNAL UNDE R IDENTICAL FACTS AND CIRCUMSTANCES, INSTRUCTION NO. 2/2008 OF CBDT, TASK FORCE REPORT ON DIAMOND SECTOR AND THE TRADE RESULTS SHOWN BY THE A PPELLANT COMPANY FOR 6 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 VARIOUS YEARS THE 100% DISALLOWANCE OF PURCHASES IN MY OPINION IS EXCESSIVE AS HELD IN VARIOUS CASE LAWS INCLUDING TH E DECISION QUOTED ABOVE. THE DISALLOWANCE SHOULD BE RESTRICTED TO 12. 5% OF SUCH PURCHASES (RELIANCE IS ALSO PLACED IN THE CASE OF SIMIT P. SH ETH 356 ITR 451 [GUJARAT HIGH COURT]. THUS, THE DISALLOWANCE ON PURCHASES FO R WHICH THE ACCOMMODATION ENTRY WAS TAKEN FROM BHANWARLAL JAIN GROUP IS UPHELD IN PRINCIPLE, HOWEVER, IT IS RESTRICTED TO 12.5% OF SU CH PURCHASES. 7. AGGRIEVED, BOTH THE REVENUE AS WELL AS ASSESSEE CAME IN APPEAL BEFORE US. 8. BEFORE US, LD COUNSEL FOR THE ASSESSEE FILED COP Y OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.307/MUM/2018 ORDER DATED 7.3.2018 AND THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-2010 I N ITA NO.1623/MUM/2018 ORDER DATED 1.1.2019 AND PARTICULA RLY REFERRED TO THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07, WHEREIN, THE TRIB UNAL HAS RESTRICTED SIMILAR DISALLOWANCE AT 3% OF THE ALLEGED BOGUS PURCHASES. THE RELEVANT FINDINGS OF THE TRIBUNAL FROM PARA 11 TO 16 IS AS UNDER: 11. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE AO HAS PLACED HIS RELIANCE FULLY ON THE STATEMENT GIVE N BY SHRI HIREN RAVAL AND ACCORDINGLY DISALLOWED ENTIRE PURCHASES MADE FR OM M/S ZALAK IMPEX. WE ALSO NOTICE THAT THE AO HAS ALSO ADDED THE SALES VALUE OF RS.10.17 LAKHS ALSO. WITH REGARD TO THE ADDITION OF RS.10.17 LAKHS, WE AGREE WITH THE CONTENTIONS OF LD A.R THAT THE SAID ADDITION IS LIABLE TO BE DELETED, AS THE ASSESSEE ITSELF HAS ALREADY OFFERED THE SAME AS ITS INCOME IN THE FORM OF SALES. ACCORDINGLY WE DIRECT THE AO TO DELETE TH E ADDITION OF RS.10.17 LAKHS, REFERRED ABOVE. 12. WITH REGARD TO THE DISALLOWANCE OF PURCHASES MA DE FROM M/S ZALAK IMPEX, THE CONTENTION OF THE ASSESSEE IS THAT IT HA S MADE ONE TO ONE RECONCILIATION OF PURCHASES OF DIAMONDS WITH SALES/ MANUFACTURE. IT IS THE CONTENTION OF THE ASSESSEE THAT IT COULD NOT HAVE S OLD/UTILISED DIAMONDS WITHOUT PURCHASING THE SAME. THERE IS MERIT IN THE SAID CONTENTIONS OF THE ASSESSEE. WE NOTICE THAT THE AO HAS PLACED RELIANCE ON VARIOUS CASE LAWS TO SUPPORT THE DISALLOWANCE MADE BY HIM. HOWEV ER, THE ISSUE UNDER CONSIDERATION BEING A FACTUAL ISSUE, THE SAME IS RE QUIRED TO BE DECIDED ON THE BASIS OF FACTS SURROUNDING THE ISSUE. AS NOTICE D EARLIER, THE AO HAS PLACED HIS ENTIRE RELIANCE ON THE STATEMENT GIVEN B Y SHRI HIREN RAVAL, 7 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 WHILE THE CONTENTION OF THE ASSESSEE IS THAT THE ST ATEMENT SO GIVEN BY SHRI HIREN RAVAL IS A SELF SERVING STATEMENT. WE NO TICE THAT THE ASSESSEE HAS SOUGHT FOR AN OPPORTUNITY TO CROSS EXAMINE SHRI HIREN RAVAL, BUT THE SAME HAS BEEN DENIED BY THE AO. WE NOTICE THAT THE ASSESSEE HAS FURNISHED COPIES OF INVOICES AND PAYMENT DETAILS TO PROVE THE GENUINENESS OF PURCHASES. WE NOTICE THAT THE AO DID NOT EXAMINE THOSE DETAILS. 13. FROM THE QUANTITY DETAILS FURNISHED IN THE ANN UAL REPORT, WE NOTICE THAT THE ASSESSEE DOES NOT HOLD ANY STOCK OF DIAMON DS AS AT THE YEAR END, MEANING THEREBY ALL THE OPENING STOCK AND PUR CHASES HAVE BEEN CONSUMED OR SOLD DURING THE YEAR UNDER CONSIDERATIO N. HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IT CO ULD NOT HAVE SOLD/UTILISED THE DIAMONDS WITHOUT ACTUALLY PURCHASING THE SAME. 14. HOWEVER, IT CANNOT BE SAID THAT THE ASSESSEE CO ULD CONCLUSIVELY PROVE THAT THE DIAMONDS WERE PURCHASED FROM M/S ZAL AK IMPEX, SINCE THE ASSESSEE DID NOT PRODUCE THE SHRI HIREN RAVAL OR CO ULD OBTAIN CONFIRMATION FROM HIM. HENCE ONE OF THE POSSIBLE VI EWS IS THAT THE ASSESSEE COULD HAVE PURCHASED DIAMONDS FROM SOME OT HER PERSON AND COULD HAVE OBTAINED ONLY THE BILLS FROM THE ABOVE S AID CONCERNS. THERE IS ALSO A POSSIBILITY; IN THAT CASE, THE ASSESSEE COUL D HAVE PURCHASED GOODS AT A PRICE LOWER THAN THE APPARENT CONSIDERATION. W E NOTICE THAT THE AO HAS ALSO VISUALISED THIS POSSIBILITY AND ACCORDINGL Y OBSERVED THAT THE ASSESSEE COULD HAVE MADE PAYMENTS FROM UNDISCLOSED SOURCES. IN THAT CASE, THE DISALLOWANCE OF ENTIRE AMOUNT OF PURCHASE S IS NOT WARRANTED. SINCE THESE ARE ALL ONLY INFERENCES WHICH ARE NOT S UPPORTED BY ANY MATERIAL, THE OBSERVATION OF THE AO THAT DISALLOWAN CE U/S 69 OF THE ACT IS TO BE MADE CANNOT BE UPHELD. 15. SINCE THE PURCHASES MADE FROM M/S ZALAK IMPEX W ERE NOT CONCLUSIVELY PROVED, WE ARE OF THE VIEW THAT THE PR OFIT ELEMENT EMBEDDED THERE IN MAY BE ADDED AS PER THE ALTERNATIVE PRAYER OF THE ASSESSEE. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (35 6 ITR 451). ACCORDING TO LD A.R, THESE DIAMONDS HAVE BEEN EXPORTED AND HE NCE THERE WILL NOT BE MUCH VARIATION IN THE PRICES AS THE PRICES OF DI AMONDS WOULD DEPEND UPON THE QUALITY. THE LD A.R ALSO SUBMITTED THAT TH E GROSS PROFIT RATE WOULD HAVE GONE DOWN, IF THE PURCHASES WERE BOGUS A ND PRICES WERE INFLATED, WHILE THE FACT REMAINS THAT THE G.P RATE HAS ACTUALLY GONE UP DURING THE YEAR UNDER CONSIDERATION VIS--VIS OTHER YEARS. ON THESE SET OF FACTS, WE FIND MERIT IN THESE SUBMISSIONS OF LD A.R . THE LD A.R HAS SUBMITTED THAT THE PROFIT ELEMENT MAY BE ESTIMATED AT A REASONABLE RATE AND HE SUGGESTED A RATE OF 2.50% BY TAKING SUPPORT FROM THE ORDERS PASSED BY THE TRIBUNAL. 16. WE HAVE NOTICED THAT THE TASK FORCE COMMITTEE HAS RECOMMENDED PROFIT RANGE OF 1.5% TO 4.5% FOR MANUFACTURING ACTI VITIES AND PROFIT RANGE OF 1% TO 3% WAS RECOMMENDED FOR TRADING ACTIVITIES. THE ASSESSEE HAS UNDERTAKEN BOTH TRADING AND MANUFACTURING ACTIVITIE S. ACCORDINGLY WE ARE 8 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 OF THE VIEW THAT THE PROFIT ELEMENT EMBEDDED IN THE IMPUGNED PURCHASES MAY BE ESTIMATED AT 3%. ACCORDINGLY WE SET ASIDE TH E ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO SUSTAIN THE ADDITION TO 3% OF THE VALUE OF ALLEGED BOGUS PURCHASES AND IN OUR VIEW, THE SAME W OULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. 9. ON THE OTHER HAND, LD SR DEPARTMENTAL REPRESENTA TIVE ONLY REQUESTED THAT THE PROFIT AT 12.5% BE RESTRICTED IN VIEW OF T HE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH, 356 ITR 45 1 (GUJ) 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE IN ENTIRETY AND NOTED THA T THE ESTIMATION WAS MADE AGAINST THE ENTIRE BOGUS PURCHASES BASED ON GA UTAM JAIN STATEMENT RECORDED BY THE INCOME TAX DEPARTMENT ON 6.10.2013. FROM THE ASSESSMENT ORDER, IT IS COMING OUT THAT THE ASS ESSING OFFICER HAS ACCEPTED THE SALES OUT OF PURCHASES MADE FROM KRIS HNA DIAMS. WE FIND THAT THE ASSESSEE HAS FILED FOLLOWING DOCUMENTS BEF ORE THE ASSESSING OFFICER TO PROVE THAT THE PURCHASES ARE GENUINE: 1) LEDGER ACCOUNTS OF M/S KRISHNA DIAM FOR THE Y EAR ENDED 31-3- 2013. 2) STOCK REGISTER REFLECTING QUANTITATIVE DETAILS O F PURCHASES AND CORRESPONDING SALES MADE TO VARIOUS PARTIES. 3) PURCHASE INVOICES RAISED WITH US BY M/S KRISHNA DIAM. 4) SALES INVOICES OUT OF PURCHASES MADE FRO M M/S KRISHNA DIAM. 5) BANK STATEMENTS REFLECTING PAYMENTS MADE TO M/S KRISHNA DIAM TOWARDS PURCHASE MADE BY US. IT IS SUBMITTED THAT A LL THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES ONLY. 6) COPY OF CONFIRMATION OF M/S. KRISHNA DIAM PROVIN G THAT THE PARTY HAS MADE GENUINE SALES TO THE ASSESSEE. 9 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 11. THE ASSESSEE HAS TRIED TO DISLODGE THE ALLEGATI ONS MADE BY THE ASSESSING OFFICER THAT THE STOCK REGISTER REFLECTIN G QUANTITATIVE DETAILS OF BILL-WISE PURCHASES MADE FROM KRISHNA DIAMS AND CORRESPONDING SALES TO VARIOUS PARTIES ALONGWITH CARATS AND AMOUNTS ARE MENTIONED IN THE S ALE BILLS. FROM THIS, IT IS ABSOLUTELY CORRECT THAT THE ASSESSEE HAS FURNISHED STOCK REGISTERS, QUANTITATIVE DETAILS ALONGWITH BILL-WISE PURCHASES AND CORRESPON DING SALES MADE FROM KRISHNA DIAMS. IT MEANS THAT THE SALES ONCE NOT DO UBTED, THE ONLY PROFIT ELEMENT CAN BE ADDED TO THE SAME. FROM THE HISTORY OF THE CASE ALSO, IT IS CLEAR THAT THE TRIBUNAL HAS BEEN ACCEPTING THESE PURCHASE S MADE FROM VARIOUS PARTIES AS BOGUS PURCHASES BUT SINCE THE SALES ARE NOT DOUB TED BY THE ASSESSING OFFICER, THE TRIBUNAL IS CONSISTENTLY APPLYING PROF IT RATE AS WE HAVE ALREADY REPRODUCED THE FINDINGS OF THE TRIBUNAL FOR ASSESSM ENT YEAR 2006-07, WHEREIN, THE TRIBUNAL HAS ESTIMATED THE PROFIT RATE AT 3% OF THE ALLEGED BOGUS PURCHASES. WE, RESPECTFULLY FOLLOWING THE SAME, RESTRICT THE D ISALLOWANCE TO THAT EXTENT ONLY. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE STRICT THE DISALLOWANCE TO 3% OF ALLEGED BOGUS PURCHASES AND PARTLY ALLOW THE APP EAL OF THE ASSESSEE AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13- - 03- 2019. AADOSA KI AADOSA KI AADOSA KI AADOSA KI GAAO GAAOGAAO GAAOYANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK 15. 03.2019 KAO KI KAO KI KAO KI KAO KI GA GAGA GA SD/ SD/ ( G.S.PANNU ) (MAHAVIR SINGH) VICE PRESIDENT JUDICIAL MEMBER 10 ITA NO.2110//MUM/2018 ITA NO.1626/MUM/2018 ASSESSMENT YEAR 2013-14 MUMBAI, DATED: 13- - 03- 2019 BKP/SR PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT 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//