M/S. GURJAR GEMS PVT. LTD., Mumbai V. ACIT, CIRCLE 9(3)(2), Mumbai

ITA 213/MUM/2023

AI Insights

The case involves M/s Gurjar Gems Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, concerning the reopening of their assessment for the assessment year 2012-13 under sections 147 and 148 of the Income Tax Act, 1961. The primary contention was regarding the validity of the reopening and the subsequent additions made to their income based on alleged bogus purchases from M/s Keshav Impex. The Tribunal examined the procedures followed by the Assessing Officer in reopening the assessment and the basis of the additions made. It was found that while the purchases were recorded and the payments were made through banking channels, the Assessing Officer had treated these purchases as non-genuine based on information from the investigation wing. The Tribunal noted that the CIT(A) had correctly restricted the addition to 8% of the alleged bogus purchases but did not consider the gross profit rate declared by the assessee, leading to the partial allowance of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123655 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 23-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 22-01-2023
• Other Referred Cases: PCIT Vs. Mohommad Haji Adam & Co., PIT Vs. Rishabhdev Tachnocable Ltd, Sterling Jewels Pvt. Ltd Vs. AGIT LITA No.6154/MI2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Principle of natural justice
• Section: 147; 68; 148; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER) ITA No. 213/MUM/2023 Assessment Year: 2012-13 M/s Gurjar Gems Pvt. Ltd., Plot No. F-17 MIDC, Marol Industrial Area, Opp. SEEPZ, Andheri (E), Chakala MIDC S.O., Mumbai-400093. Vs. ACIT, Circle 9(3)(2), Aayakar Bhavan, Maharshi Karve Road, Mumbai-400020. PAN No. AAACG 3685 L Appellant Respondent Assessee by : Mr. Ravikant Pathak, AR Revenue by : Mr. Milind S. Chavan, DR Date of Hearing : 24/03/2023 Date of pronouncement : 31/03/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 19 th of December, 2022 passed by the Ld. Commissioner of Income- tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds: “1. The Commissioner of Income Tax (Appeals) - NFAC, New Delhi, [hereinafter referred to as 'the CIT(A)'1 erred in confirming the action of AO in re-opening of the assessment by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961. The Appellant submits that the notice issued w and reopening of assessment w/s 147 is bad in law, illegal, ultra- Act and shall be quashed. 2. a) The CIT(A) erred in confirming the action of AO in passing the assessment order W/s 147 of the Act disposing of Appellant's objection against reopening of assessment us 148 of the Act. b) The CIT(A) erred in confirming the action of the AO in issuing the notice u/s 148 of the Act after expiry of four years from the end of relevant assessment yea specifying the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Appellant submits that in its case assessment proceeding has been completed u/s 143(3) of the Act after considerin the Appellant; hence, the same cannot be reopened after expiry of four years from the end of relevant assessment year. c) The CIT(A) erred in confirming the AO's action of making addition on bare allegation that the trans have been accepted as non Mr. Anil Chokhara (Prop. M/s. Keshav Impex) without providing any such alleged statement/details/information, cross verification of the concerned person to the Appellant and thus such order passed is in gross violation of principle of natural justice; thus, void in law and needs to be quashed. 3. a) The CIT(A) erred in confirming the AO's action of treating the purchases from M/s Keshav Impex as non genuine/bogus and restricting the addition to R 7,04,000/- being 8% of alleged bogus purchases of Rs. 88,00,000/-made by the Appellant. The Appellant submits that it has actually purchased gold for manufacture of jewellery, payment for which were made through proper banking channels, the goods were received and were sold to independent third party buyers and sales have been duly accounted for computing taxable income; hence, the goods purchased The Appellant submits that the notice issued w and reopening of assessment w/s 147 is bad in law, - virus and contrary to the provision of the I.T. Act and shall be quashed. 2. a) The CIT(A) erred in confirming the action of AO in passing the assessment order W/s 147 of the Act disposing of Appellant's objection against reopening of assessment us 148 of the Act. b) The CIT(A) erred in confirming the action of the AO in issuing the notice u/s 148 of the Act after expiry of four years from the end of relevant assessment year without specifying the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Appellant submits that in its case assessment proceeding has been completed u/s 143(3) of the Act after considering full details/disclosure filed by the Appellant; hence, the same cannot be reopened after expiry of four years from the end of relevant assessment c) The CIT(A) erred in confirming the AO's action of making addition on bare allegation that the trans have been accepted as non-genuine transaction by one Mr. Anil Chokhara (Prop. M/s. Keshav Impex) without providing any such alleged statement/details/information, cross verification of the concerned person to the Appellant and thus such order d is in gross violation of principle of natural justice; thus, void in law and needs to be quashed. 3. a) The CIT(A) erred in confirming the AO's action of treating the purchases from M/s Keshav Impex as non genuine/bogus and restricting the addition to R being 8% of alleged bogus purchases of Rs. made by the Appellant. The Appellant submits that it has actually purchased gold for manufacture of jewellery, payment for which were made through proper banking channels, the goods eceived and were sold to independent third party buyers and sales have been duly accounted for computing taxable income; hence, the goods purchased M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 2 The Appellant submits that the notice issued w/s 148 and reopening of assessment w/s 147 is bad in law, virus and contrary to the provision of the I.T. 2. a) The CIT(A) erred in confirming the action of AO in passing the assessment order W/s 147 of the Act without disposing of Appellant's objection against reopening of b) The CIT(A) erred in confirming the action of the AO in issuing the notice u/s 148 of the Act after expiry of four r without specifying the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Appellant submits that in its case assessment proceeding has been completed u/s 143(3) of g full details/disclosure filed by the Appellant; hence, the same cannot be reopened after expiry of four years from the end of relevant assessment c) The CIT(A) erred in confirming the AO's action of making addition on bare allegation that the transactions genuine transaction by one Mr. Anil Chokhara (Prop. M/s. Keshav Impex) without providing any such alleged statement/details/information, cross verification of the concerned person to the Appellant and thus such order d is in gross violation of principle of natural justice; 3. a) The CIT(A) erred in confirming the AO's action of treating the purchases from M/s Keshav Impex as non - genuine/bogus and restricting the addition to Rs. being 8% of alleged bogus purchases of Rs. The Appellant submits that it has actually purchased gold for manufacture of jewellery, payment for which were made through proper banking channels, the goods eceived and were sold to independent third party buyers and sales have been duly accounted for computing taxable income; hence, the goods purchased from M/s Keshav Impex cannot be treated as non genuine/bogus purchases. Therefore, under the facts and circumstances of the case, the Appellant prays that the addition confirmed by the CIT(A) shall be deleted. (b) In the alternative and without prejudice to the above, the CIT(A) erred in confirming the addition 7,04,000/ being 8% of alleged bogus purchases made Appellant without appreciating the fact that the Appellant itself has declared gross profit @ 6.08% on the alleged bogus purchases. The Appellant prays that the credit of gross profit @ 6.08% declared by it shall be given against the addition @ 8% alleged bogus purchases confirmed by the CIT (A). (c) In the alternative and without prejudice to the above, the Appellant submits that the estimated addition at the rate of 8% of alleged bogus purchase is excessive and reasonable. The Appellant submits th alleged bogus purchases shall be restricted to a reasonable amount. 4. The AO erred in initiating penalty proceeding w/s 271(1)(c) of the I. T. Act.Your Appellant craves leave to add, to alter or to amend the aforesaid ground 2. Briefly stated facts of the case are that the assessee company was engaged in the business of manufacturing of studded jewellery including diamond jewelry. For the year under consideration, the assessee filed return of income on 24/09/2012 declaring total income of ₹52,85,590/ was selected for scrutiny and assessment under section 143(3 the Income-tax Act, 1961 ( 21/03/2015, wherein the return Subsequently, on receipt of information from the investigation wing from M/s Keshav Impex cannot be treated as non genuine/bogus purchases. Therefore, under the facts and mstances of the case, the Appellant prays that the addition confirmed by the CIT(A) shall be deleted. (b) In the alternative and without prejudice to the above, the CIT(A) erred in confirming the addition 7,04,000/ being 8% of alleged bogus purchases made Appellant without appreciating the fact that the Appellant itself has declared gross profit @ 6.08% on the alleged bogus purchases. The Appellant prays that the credit of gross profit @ 6.08% declared by it shall be given against the addition alleged bogus purchases confirmed by the CIT (A). (c) In the alternative and without prejudice to the above, the Appellant submits that the estimated addition at the rate of 8% of alleged bogus purchase is excessive and The Appellant submits that the addition on account of alleged bogus purchases shall be restricted to a reasonable amount. 4. The AO erred in initiating penalty proceeding w/s 271(1)(c) of the I. T. Act.Your Appellant craves leave to add, to alter or to amend the aforesaid ground ofappeal. stated facts of the case are that the assessee company was engaged in the business of manufacturing of studded jewellery including diamond jewelry. For the year under consideration, the return of income on 24/09/2012 declaring total 590/-. The return of income filed by the assessee was selected for scrutiny and assessment under section 143(3 tax Act, 1961 (in short ‘the Act’) was completed on herein the returned income was accepted. on receipt of information from the investigation wing M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 3 from M/s Keshav Impex cannot be treated as non- genuine/bogus purchases. Therefore, under the facts and mstances of the case, the Appellant prays that the (b) In the alternative and without prejudice to the above, the CIT(A) erred in confirming the addition 7,04,000/- by the Appellant without appreciating the fact that the Appellant itself has declared gross profit @ 6.08% on the alleged The Appellant prays that the credit of gross profit @ 6.08% declared by it shall be given against the addition alleged bogus purchases confirmed by the CIT (A). (c) In the alternative and without prejudice to the above, the Appellant submits that the estimated addition at the rate of 8% of alleged bogus purchase is excessive and at the addition on account of alleged bogus purchases shall be restricted to a 4. The AO erred in initiating penalty proceeding w/s 271(1)(c) of the I. T. Act.Your Appellant craves leave to ofappeal. stated facts of the case are that the assessee company was engaged in the business of manufacturing of studded jewellery including diamond jewelry. For the year under consideration, the return of income on 24/09/2012 declaring total . The return of income filed by the assessee was selected for scrutiny and assessment under section 143(3) of ) was completed on income was accepted. on receipt of information from the investigation wing of the Income-tax Department accommodation entry of bogus purchase from Sri Anil Chokara (Prop. Of Keshav Impex) Assessing Officer reopened the assessment by way of issue of notice under section 148 of the order dated 03/12/2019 in terms of section 143(3) read with section 147 of the A purchase of ₹ 88 lakh shown from the said party in the books of accounts of the assessee. On further appeal, the Ld. CIT(A) restricted the disallowance to 8% of the out to ₹7,04,000/-. Aggrieved, the assessee is before the by way of raising grounds 3. Before us the Ld. assessee has duly discharged of the purchase. The is genuine,because, ledger account of M/s Keshav Impex alongwith copies of tax invoices issued by M/s Keshav Impex. Keshav Impex was made through is no allegation of the Assessing Officer that the assessee received back the payments made to Keshav Impex in cash or otherwise. Thirdly, the gold purchase the assessee in the normal cour and the jewelry made by the assessee has already been sold to the epartment, Mumbai that assessee received an accommodation entry of bogus purchase from Sri Anil Chokara (Prop. Of Keshav Impex) during the year under consideration, the Assessing Officer reopened the assessment by way of issue of notice under section 148 of the Act on 29/03/2019. In the reassessment order dated 03/12/2019 in terms of section 143(3) read with Act, the Assessing Officer disallowed the entire 88 lakh shown from the said party in the books of accounts of the assessee. On further appeal, the Ld. CIT(A) restricted the disallowance to 8% of the purchase,which . Aggrieved, the assessee is before the by way of raising grounds as reproduced above. the Ld. counsel of the assessee submitted that assessee has duly discharged its onus of establishing genuineness of the purchase. The Ld. counsel submitted that relevant ,because, firstly, the assessee has already filed copy of ledger account of M/s Keshav Impex alongwith copies of tax invoices issued by M/s Keshav Impex. Secondly, the payment to Keshav Impex was made through proper banking channel and there no allegation of the Assessing Officer that the assessee received back the payments made to Keshav Impex in cash or otherwise. , the gold purchased from M/s Keshav Impex was used by the assessee in the normal course of the business of making jewelry and the jewelry made by the assessee has already been sold to the M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 4 Mumbai that assessee received an accommodation entry of bogus purchase from Sri Anil Chokara during the year under consideration, the Assessing Officer reopened the assessment by way of issue of notice on 29/03/2019. In the reassessment order dated 03/12/2019 in terms of section 143(3) read with disallowed the entire 88 lakh shown from the said party in the books of accounts of the assessee. On further appeal, the Ld. CIT(A) purchase,which was worked . Aggrieved, the assessee is before the Tribunal counsel of the assessee submitted that onus of establishing genuineness that relevant purchase , the assessee has already filed copy of ledger account of M/s Keshav Impex alongwith copies of tax , the payment to proper banking channel and there no allegation of the Assessing Officer that the assessee received back the payments made to Keshav Impex in cash or otherwise. from M/s Keshav Impex was used by se of the business of making jewelry and the jewelry made by the assessee has already been sold to the various independent third party buyers disputed by the Assessing Officer. of purchase and the sale a copy of which was filed before the Assessing Officer. The l counsel further submitted that the Assessing Officer has made addition solely on the basis of the information received from the investigation wing without bringing any cogent material on record. Therefore, according to him no disallowance is called for in the case of the assessee. 4. The Ld. Departmental Representative (DR) relied on the order of the Assessing Officer issued notice under section 133(6) of the verification of genuineness of the purchase made from the said party, however there was no compliance of the said notice assessee also did not p Officer and therefore Assessing Officer is justified in disallowing the purchases shown by the assessee in its books of accounts. 5. We have heard rival submission of the parties on the issue in dispute and perused th the Assessing Officer made disallowance of the whole of the purchase amount from M/s Keshav Impex amounting to ₹88,00,000/-. But we find that assessee has shown quantitative tally of purchase and subsequent various independent third party buyers, which has not been disputed by the Assessing Officer. Fourthly, the quantitative details purchase and the sales was duly reflected in the tax audit report, a copy of which was filed before the Assessing Officer. The l counsel further submitted that the Assessing Officer has made addition solely on the basis of the information received from the without bringing any cogent material on record. Therefore, according to him no disallowance is called for in the case Departmental Representative (DR) on the other hand relied on the order of the lower authorities and submitted that the Assessing Officer issued notice under section 133(6) of the verification of genuineness of the purchase made from the said there was no compliance of the said notice assessee also did not producedthe party before the Assessing Officer and therefore Assessing Officer is justified in disallowing the purchases shown by the assessee in its books of accounts. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that the Assessing Officer made disallowance of the whole of the purchase amount from M/s Keshav Impex amounting to . But we find that assessee has shown quantitative tally of purchase and subsequent consumption of the gold shown to M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 5 which has not been , the quantitative details was duly reflected in the tax audit report, a copy of which was filed before the Assessing Officer. The ld. counsel further submitted that the Assessing Officer has made addition solely on the basis of the information received from the without bringing any cogent material on record. Therefore, according to him no disallowance is called for in the case on the other hand authorities and submitted that the Assessing Officer issued notice under section 133(6) of the Act for verification of genuineness of the purchase made from the said there was no compliance of the said notice and the party before the Assessing Officer and therefore Assessing Officer is justified in disallowing the purchases shown by the assessee in its books of accounts. We have heard rival submission of the parties on the issue in e relevant material on record. We find that the Assessing Officer made disallowance of the whole of the purchase amount from M/s Keshav Impex amounting to . But we find that assessee has shown quantitative of the gold shown to have purchased from not doubted the sales and the consumption of the goldused in manufacturing of jewelry, therefore in such circumstances the only possibility is that the assessee has market and only obtained bill from M/s Keshav Impex. In such circumstances the Ld. CIT(A) has restricted the disallowance to the 8% of the purchase a Keshav Impex. The relevant finding o as under: “3.4 I have carefully considered the submissions and judicial pronouncement quoted by the Appellant and'Assessment Order. That the Appellant has contended thalufelgold purchased from MIs Keshav Impex Abpellant in its normal course of business of Jewelleryand the same has also been sold id various independent third party buyers. That the Appellan the quantitative details of purchases and alps made by the Appellant are also reflected in Tax Audit Report of the Appellant filed before the A during the course of Assessment Proceeding which was accepted by the Assessing Officer andthe trading result was also accepted. That from above facts it is clear that Ld. Asse has verified and accepted the guantitative details related to sales and purchases. The Ld.Assessing Officer has made the above addition solely on the basis of information received from Income Tax Officer, Surat without bringing any cogent material on record. Further, Ld. Assessing Officer had reopened the case based upon the information received from IT Ward the appellant has bookedbogus purchase from M/s Keshav Impexof Diamond and said entity was not doing the business of Diamond. In this regard the appellant had submitted thatAppellant had purchased Gold from M/sKeshav Impex from M/s Keshav Impex. The Assessing Officer has not doubted the sales and the consumption of the goldused in manufacturing of jewelry, therefore in such circumstances the only possibility is that the assessee has purchased market and only obtained bill from M/s Keshav Impex. In such circumstances the Ld. CIT(A) has restricted the disallowance to the as recorded in the books of accounts from M/s Keshav Impex. The relevant finding of the Ld. CIT(A) is reproduced 3.4 I have carefully considered the submissions and judicial pronouncement quoted by the Appellant and'Assessment Order. That the Appellant has contended thalufelgold purchased from MIs Keshav Impex was used by the Abpellant in its normal course of business of Jewelleryand ame has also been sold id various independent third party buyers. That the Appellant has jurther contended that the quantitative details of purchases and alps made by the llant are also reflected in Tax Audit Report of the Appellant filed before the A during the course of Assessment Proceeding which was accepted by the Assessing Officer andthe trading result was also accepted. That from above facts it is clear that Ld. Assessing Officer has verified and accepted the guantitative details related to sales and purchases. The Ld.Assessing Officer has made the above addition solely on the basis of information received from Income Tax Officer, Surat without bringing any cogent erial on record. Further, Ld. Assessing Officer had reopened the case based upon the information received from IT Ward-1(1)(4) Surat i.e. the appellant has bookedbogus purchase from M/s Keshav Impexof Diamond and said entity was not doing the business iamond. In this regard the appellant had submitted thatAppellant had purchased Gold from M/sKeshav Impex M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 6 The Assessing Officer has not doubted the sales and the consumption of the goldused in manufacturing of jewelry, therefore in such circumstances the only gold from grey market and only obtained bill from M/s Keshav Impex. In such circumstances the Ld. CIT(A) has restricted the disallowance to the s recorded in the books of accounts from M/s f the Ld. CIT(A) is reproduced 3.4 I have carefully considered the submissions and judicial pronouncement quoted by the Appellant and'Assessment Order. That the Appellant has contended thalufelgold was used by the Abpellant in its normal course of business of Jewelleryand ame has also been sold id various independent third has jurther contended that the quantitative details of purchases and alps made by the- llant are also reflected in Tax Audit Report of the Appellant filed before the A during the course of Assessment Proceeding which was accepted by the Assessing Officer ssing Officer has verified and accepted the guantitative details related to sales and purchases. The Ld.Assessing Officer has made the above addition solely on the basis of information received from Income Tax Officer, Surat without bringing any cogent Further, Ld. Assessing Officer had reopened the case based 1(1)(4) Surat i.e. the appellant has bookedbogus purchase from M/s Keshav Impexof Diamond and said entity was not doing the business iamond. In this regard the appellant had submitted thatAppellant had purchased Gold from M/sKeshav Impex and not done any transaction relatedto Diamond. Therefore, information passed on by the Assessing Officer is general in nature and not directly pertain the Appellant. Furthermore, in the similar matter, Hon'ble Jurisdictional Bombay High Court in the case of PCIT Vs. Mohommad Haji Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High Court has held that only the profit margi purchases can be addedto the total income of the Appellant by observing as under: 8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There wa between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuin Identical view was also taken by the Hon'ble Jurisdictional Bombay High Courtin the case of a c engaged in the business of manufacturingof all kinds of industrial power controlling instrument related items i.e. PIT Vs. RishabhdevTachnocable Ltd [2020]115 taxmann.com 333 (Bombay), held as under : "Section 68 of the Income purchases) declared certain purchases to be made during year Assessing Officer added entire quantum of purchases to and not done any transaction relatedto Diamond. Therefore, information passed on by the Assessing Officer is general in nature and not directly pertain to the nature of business of the Appellant. Furthermore, in the similar matter, Hon'ble Jurisdictional Bombay High Court in the case of PCIT Vs. Mohommad Haji Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High Court has held that only the profit margin in alleged bogus purchases can be addedto the total income of the Appellant by observing as under: 8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The ribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. Identical view was also taken by the Hon'ble Jurisdictional Bombay High Courtin the case of a company who was engaged in the business of manufacturingof all kinds of industrial power controlling instrument cables and related items i.e. PIT Vs. RishabhdevTachnocable Ltd 115 taxmann.com 333 (Bombay), held as under : "Section 68 of the Income-tax Act. 1961 - Cash credits (Bogus purchases) - Assessment year 2010-11 - Assessee had declared certain purchases to be made during year Assessing Officer added entire quantum of purchases to M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 7 and not done any transaction relatedto Diamond. Therefore, information passed on by the Assessing Officer is general in to the nature of business of Furthermore, in the similar matter, Hon'ble Jurisdictional Bombay High Court in the case of PCIT Vs. Mohommad Haji Adam & Co. 80rs [104 CCH 391] wherein the hon'ble High n in alleged bogus purchases can be addedto the total income of the Appellant 8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not s no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The ribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the Identical view was also taken by the Hon'ble Jurisdictional ompany who was engaged in the business of manufacturingof all kinds of cables and and related items i.e. PIT Vs. RishabhdevTachnocable Ltd 115 taxmann.com 333 (Bombay), held as under : Cash credits (Bogus Assessee had declared certain purchases to be made during year - Assessing Officer added entire quantum of purchases to income of assessee on plea that purchases were bogus purchases made from hawala parties (Appeals) held that there could be no sales without purchases and when sales made by assessee were accepted by Assessing Officer, then entire purchases could not be disallowed - of 2 per cent on purchases should be added back to income of assessee 2 per cent of profit which was directed to be added by Commissioner (Appeals) was on lower side and directed Assessing Off Apart from above orders./for'ble Jurisdictional ITAT, Mumbai inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble Tribunal restricted thedisallowance purchased by "6....The ITAT, identical issue and deperding upon facts of each case, directed the Ld.AO to estimate profit of 3% to 12.50% on total alleged bogus purchases. I the business of diamond trading. The profit element in diamond trading is around 2 to 3% depending upon nature of trade. Even, the BEP had recommended profit percentage of 2% in case of trading and 3% for manufacturers. Th considering the nature of business of the assessee had estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down estimation of profit to 3% on tetal alleged bogus purchase... Therefore, in view of above judgment and the ratios thereof, the same may case, as under: . That the Appellant has furnishedthe information related to the suppliers and the details were furnished with regard to purchase during the assessment proceeds which was accepted by th • That during the reassessment proceeding also the details with regard to the Tax Invoice of transaction, supplier identity, address and ledger account of parties etc. were furnished. income of assessee on plea that purchases were bogus es made from hawala parties - Commissioner (Appeals) held that there could be no sales without purchases and when sales made by assessee were accepted by Assessing Officer, then entire purchases could not be - He took view that only reasonable p of 2 per cent on purchases should be added back to income of assessee - Tribunal, on appeal filed by revenue, held that 2 per cent of profit which was directed to be added by Commissioner (Appeals) was on lower side and directed Assessing Officer to make further addition of 3 per cent part from above orders./for'ble Jurisdictional ITAT, Mumbai inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble Tribunal restricted thedisallowance to 3% of alleged bogus purchased by observing at under "6....The ITAT, Mumbai innumber of cases had considered identical issue and deperding upon facts of each case, directed the Ld.AO to estimate profit of 3% to 12.50% on total alleged bogus purchases. In this case, the assessee is into the business of diamond trading. The profit element in diamond trading is around 2 to 3% depending upon nature of trade. Even, the BEP had recommended profit percentage of 2% in case of trading and 3% for manufacturers. Th considering the nature of business of the assessee had estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down estimation of profit to 3% on tetal alleged bogus Therefore, in view of above judgment and the ratios thereof, ame may applied on facts & circumstancesof the instant case, as under: . That the Appellant has furnishedthe information related to the suppliers and the details were furnished with regard to purchase during the assessment proceeds which was accepted by the AO as such. • That during the reassessment proceeding also the details with regard to the Tax Invoice of transaction, supplier identity, address and ledger account of parties etc. were M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 8 income of assessee on plea that purchases were bogus Commissioner (Appeals) held that there could be no sales without purchases and when sales made by assessee were accepted by Assessing Officer, then entire purchases could not be He took view that only reasonable profit at rate of 2 per cent on purchases should be added back to income Tribunal, on appeal filed by revenue, held that 2 per cent of profit which was directed to be added by Commissioner (Appeals) was on lower side and directed icer to make further addition of 3 per cent. part from above orders./for'ble Jurisdictional ITAT, Mumbai inthe case of Sterling Jewels Pvt. Ltd Vs. AGIT LITA No.6154/MI2016 80rs](TAT Mumbal) wherein the holfble to 3% of alleged bogus Mumbai innumber of cases had considered identical issue and deperding upon facts of each case, directed the Ld.AO to estimate profit of 3% to 12.50% on total n this case, the assessee is into the business of diamond trading. The profit element in diamond trading is around 2 to 3% depending upon nature of trade. Even, the BEP had recommended profit percentage of 2% in case of trading and 3% for manufacturers. The Id. AO, considering the nature of business of the assessee had estimated 12.50% profit, whereas the Ld.CIT(A) has scaled down estimation of profit to 3% on tetal alleged bogus Therefore, in view of above judgment and the ratios thereof, applied on facts & circumstancesof the instant . That the Appellant has furnishedthe information related to the suppliers and the details were furnished with regard to purchase during the assessment proceeds which was • That during the reassessment proceeding also the details with regard to the Tax Invoice of transaction, supplier identity, address and ledger account of parties etc. were • That payment were made through banking channel and accepted by the Assessing Officer and the Assessing Officer has not brought anycongent was paid back to Appellant by the supplier. • That the Manufacturing account/Profit & loss account furnished by the Appellant was accepted by t books of account was audited U/s44AB being private limited company. That the history of the assessment of the Appellant shows that purchasewere never disbelieve Further, it is importalito note fififthe Assessing Officer has not takenany adverse disclosed in the books at account for input of raw matefiakconsumed vis ar goods produced. Therefore in the rabsence of any adverse finding of Assessing Officer with regard to input/output ratios in quantitive terms, the Assessing Officer., how at the conclusion stage can not held that there was some element of input consumption which has been shown as inflated by the Appellant to reduce the taxable income, meaning thereby the Assessing Officer information supplied by the Income Tax Officer, Ward 1(1)(4), Surat as gospel truth without any conclusive direct evidence brought on record. • Moreover, since it is not possible to produce/manufacture something witho hence it is not correct to disallow some quantity as bogus specially when same has not been challenged while accepting the quantitive ratios/details disclosed by the Appellant. Further, the Assessing Officer has rel of Apex Court in case of M/S Kachwala Gems Vs JCIT 288 ITR 10 (SC)delivered while affirming the order of ITAT, Jaipur. The judgement of Supreme Court was perused and considered and found to be distinguished as the fact of case is different namely the judgement was made where the Assessing Officer has passed the order us 144 i.e. Best Judgement Assessment(Ex Officer noticed the defects in the books of accountof the • That payment were made through banking channel and ted by the Assessing Officer and the Assessing Officer has not brought anycongent material o establish that cash was paid back to Appellant by the supplier. • That the Manufacturing account/Profit & loss account furnished by the Appellant was accepted by the AO, the books of account was audited U/s44AB being private limited That the history of the assessment of the Appellant shows that purchasewere never disbelieve. Further, it is importalito note fififthe Assessing Officer has not takenany adverse view with regard to the ratios disclosed in the books at account for input of raw matefiakconsumed vis ar-vis unit output of the finished goods produced. Therefore in the rabsence of any adverse finding of Assessing Officer with regard to input/output ios in quantitive terms, the Assessing Officer., how at the conclusion stage can not held that there was some element of input consumption which has been shown as inflated by the Appellant to reduce the taxable income, meaning thereby the Assessing Officer has accepted and solely relied upon information supplied by the Income Tax Officer, Ward 1(1)(4), Surat as gospel truth without any conclusive direct evidence brought on record. • Moreover, since it is not possible to produce/manufacture something without incurring any inputs of raw material, hence it is not correct to disallow some quantity as bogus specially when same has not been challenged while accepting the quantitive ratios/details disclosed by the Further, the Assessing Officer has relied upon the Judgment of Apex Court in case of M/S Kachwala Gems Vs JCIT 288 ITR 10 (SC)delivered while affirming the order of ITAT, Jaipur. The judgement of Supreme Court was perused and considered and found to be distinguished as the fact of case erent namely the judgement was made where the Assessing Officer has passed the order us 144 i.e. Best Judgement Assessment(Ex-parte), where the Assessing Officer noticed the defects in the books of accountof the M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 9 • That payment were made through banking channel and ted by the Assessing Officer and the Assessing Officer o establish that cash • That the Manufacturing account/Profit & loss account furnished by the Appellant was accepted by the AO, the books of account was audited U/s44AB being private limited That the history of the assessment of the Appellant shows Further, it is importalito note fififthe Assessing Officer has view with regard to the ratios disclosed in the books at account for input of raw vis unit output of the finished goods produced. Therefore in the rabsence of any adverse finding of Assessing Officer with regard to input/output ios in quantitive terms, the Assessing Officer., how at the conclusion stage can not held that there was some element of input consumption which has been shown as inflated by the Appellant to reduce the taxable income, meaning thereby the has accepted and solely relied upon information supplied by the Income Tax Officer, Ward - 1(1)(4), Surat as gospel truth without any conclusive direct • Moreover, since it is not possible to produce/manufacture ut incurring any inputs of raw material, hence it is not correct to disallow some quantity as bogus specially when same has not been challenged while accepting the quantitive ratios/details disclosed by the ied upon the Judgment of Apex Court in case of M/S Kachwala Gems Vs JCIT 288 ITR 10 (SC)delivered while affirming the order of ITAT, Jaipur. The judgement of Supreme Court was perused and considered and found to be distinguished as the fact of case erent namely the judgement was made where the Assessing Officer has passed the order us 144 i.e. Best parte), where the Assessing Officer noticed the defects in the books of accountof the assessee such as the assessee has not mainta any quantitative details/stock register for the goods traded inby the assessee and there is no evidence on record or document to verify the basis of the valuation of the closing stockshown by the assessee and the assessee is not able to prepare such details even with the help of books ofaccount maintained, purchase bills & Sale Invoices etc.Further, GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to theresult declared by the itself in the previous a case, all the details has been furnished in support.of the purchase and Assessment has been done after considering the all the material facts available on record i.e. regular assessment has been done ys 143(3) of the Inco 1961. Futher, the variogs other judgeriehtof non, jurisdictional/fAT & High Courtswere quoted by the Assessing Officer in this regard, which were carefully&circumstances of the instant case, therefore the same are not applicable on the fact & circumstances of the instant case. Hence on the basis of judicial finding emanating from the various judicial prouncement as discussed, it is clear that the addition/disallowance was notwarranted in the manner it has been done by the Assessing Officer. Therefore, keeping in view the above narrated facts, circumstances, the submissions of the Appellant and respectfully following the Judgement of Hon'ble Jurisdictional Bombay High Court & Jurisdictional ITAT and after considering the GP rate of the Appellant the addition after applying the GP rate of 8% of the purchase of Rs. 88,00,000/ (88,00,000*%) is being confirmed and addition of Rs.80,96,000/ 5.1 But we find that Ld. rate of the 8% of the purchase of profit rate of 6.08% declared by the assessee ignored the fact of gross profit rate of 6.08% assessee such as the assessee has not maintained and kept any quantitative details/stock register for the goods traded inby the assessee and there is no evidence on record or document to verify the basis of the valuation of the closing stockshown by the assessee and the assessee is not able to re such details even with the help of books ofaccount maintained, purchase bills & Sale Invoices etc.Further, GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to theresult declared by the itself in the previous assessmentyearsWhile in the instant case, all the details has been furnished in support.of the purchase and Assessment has been done after considering the all the material facts available on record i.e. regular assessment has been done ys 143(3) of the Income Tax Act, Futher, the variogs other judgeriehtof non, jurisdictional/fAT & High Courtswere quoted by the Assessing Officer in this regard, which were carefully&circumstances of the instant case, therefore the same are not applicable on the fact & circumstances of the instant case. Hence on the basis of judicial finding emanating from the various judicial prouncement as discussed, it is clear that the addition/disallowance was notwarranted in the manner it has been done by the Assessing Officer. erefore, keeping in view the above narrated facts, circumstances, the submissions of the Appellant and respectfully following the Judgement of Hon'ble Jurisdictional Bombay High Court & Jurisdictional ITAT and after considering the GP rate of the Appellant i.e. 6.08%, I restrict the addition after applying the GP rate of 8% of the purchase of Rs. 88,00,000/- i.e. addition of Rs. (88,00,000*%) is being confirmed and addition of Rs.80,96,000/- is being deleted accordingly.” we find that Ld. CIT(A) restricted the gross profit rate of the 8% of the purchase of ₹88,00,000/-as against the gross 6.08% declared by the assessee. The Ld. CIT(A) has not ignored the fact of gross profit rate of 6.08% has M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 10 ined and kept any quantitative details/stock register for the goods traded inby the assessee and there is no evidence on record or document to verify the basis of the valuation of the closing stockshown by the assessee and the assessee is not able to re such details even with the help of books ofaccount maintained, purchase bills & Sale Invoices etc.Further, GP rate declared by the assessee at 13.49 per cent during the assessment year is not a match to theresult declared by the ssessmentyearsWhile in the instant case, all the details has been furnished in support.of the purchase and Assessment has been done after considering the all the material facts available on record i.e. regular me Tax Act, Futher, the variogs other judgeriehtof non, jurisdictional/fAT & High Courtswere quoted by the Assessing Officer in this regard, which were carefully&circumstances of the instant case, therefore the same are not applicable on the fact & Hence on the basis of judicial finding emanating from the various judicial prouncement as discussed, it is clear that the addition/disallowance was notwarranted in the manner it erefore, keeping in view the above narrated facts, circumstances, the submissions of the Appellant and respectfully following the Judgement of Hon'ble Jurisdictional Bombay High Court & Jurisdictional ITAT and after i.e. 6.08%, I restrict the addition after applying the GP rate of 8% of the purchase i.e. addition of Rs.7,04,000/- (88,00,000*%) is being confirmed and addition of CIT(A) restricted the gross profit at the as against the gross . The Ld. CIT(A) has not has already been declared by the assessee and for which no deduction The ld. CIT(A) was required to consider this fact and allow the deduction of gross profit already declared by the assessee corresponding to the purchase in question. aside the finding of the Ld. CIT(A) to the extent of application of the rate of the gross profit and direct the Assessing Officer to reduce the gross profit at the rate of the 6.08% from the gross profit rate of 8% applied by the Ld. CI Accordingly, the gross profit corresponding to the gross profit rate of ( 8- 6.08)=1.92% on purchases of works out to ₹1,68,960/ the assessee as benefit in actual purchase from grey market grounds of appeal of assessee are accordingly partly allowed. 6. In the result, the appeal of assessee is partly allowed. Order pronounced in the open Court on Sd/- (SANDEEP SINGH KARHAIL JUDICIAL MEMBER Mumbai; Dated: 31/03/2023 Rahul Sharma, Sr. P.S. he assessee corresponding to purchase of deduction has been provided by the Ld. CIT(A) The ld. CIT(A) was required to consider this fact and allow the deduction of gross profit already declared by the assessee the purchase in question. Accordingly, we set aside the finding of the Ld. CIT(A) to the extent of application of the rate of the gross profit and direct the Assessing Officer to reduce the gross profit at the rate of the 6.08% from the gross profit rate of 8% applied by the Ld. CIT(A) on the purchase of the gross profit corresponding to the gross profit rate of 1.92% on purchases of ₹88,00,000/-is sustained 960/-. This is the amount which translated to benefit in actual purchase from grey market grounds of appeal of assessee are accordingly partly allowed. In the result, the appeal of assessee is partly allowed. Order pronounced in the open Court on 31/03/2023. Sd/ SANDEEP SINGH KARHAIL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 11 corresponding to purchase of ₹88,00,000/- has been provided by the Ld. CIT(A). The ld. CIT(A) was required to consider this fact and allow the deduction of gross profit already declared by the assessee Accordingly, we set aside the finding of the Ld. CIT(A) to the extent of application of the rate of the gross profit and direct the Assessing Officer to reduce the gross profit at the rate of the 6.08% from the gross profit rate of 8% T(A) on the purchase of ₹88,00,000/-. the gross profit corresponding to the gross profit rate of is sustained, which This is the amount which translated to benefit in actual purchase from grey market. The grounds of appeal of assessee are accordingly partly allowed. In the result, the appeal of assessee is partly allowed. 03/2023. Sd/- PRAKASH KANT) ACCOUNTANT MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Gurjar Gems Pvt. Ltd. ITA No. 213/M/2023 12 BY ORDER, (Assistant Registrar) ITAT, Mumbai