ITO (E) I(1), MUMBAI V. BAUN FOUNDATION TRUST, MUMBAI

ITA 216/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0933 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C S GULATI
• Keywords: Bogus purchase; Accommodation entries
• Section: 69C; 143(3); 10AA

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 153/JP /2014 ( / ASSESSMENT YEAR: 2010 - 11 ) M.S GOENKA DIAMOND & JEWELLS LTD, 401, PANCHRATNA , M.S.B. KA RASTA, JAIPUR. / VS. ACIT, CIRCLE - 2, NCR BUILDING, JAIPUR ./ ./ PAN/GIR NO. A AA CG7934Q ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO . 216/JP /2014 & ITA NO. 124/JP /2015 ( / ASSESSMENT YEAR: 2010 - 11 & 2011 - 12 ) ACIT, CIRCLE - 2, NCR BUILDING, JAIPUR / VS. M.S GOENKA DIAMOND & JEWELLS LTD, 401, PANCHRATNA, M.S.B. KA RASTA, JAIPUR. ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI C. S. GULATI , CIT(DR) / RESPONDENTBY : SHRI DHARMESH SHAH /D HAVAL SHAH / DATE OF HEARING : 28/11 /201 7 / DATE OF PRONOUNCEMENT : 10/01/2018 2 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE PRESENT THREE APPEAL S HAVE BEEN FILED BY THE REVENUE AS WELL AS ASSESSEE ARE AGAINST THE ORDER OF COMMISS I ONER OF INCOME TAX (APPEALS) - 1 , JAIPUR DATED 29.01 .1 4 AND 14.11.14 RESPECTIVELY. 2. SINCE, THE FACTS RAISED IN ALL THE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE IDENTICAL, THEREFORE FOR THE SAKE OF CONVENIENCE; THEY ARE CLUBBED, HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. FIRST OF ALL WE TAKE UP APPEALS IN ITA NO. 216 /JP /2014 & 153/JP /2014 FILED BY BOTH I.E. REVENUE AS WELL AS ASSESSEE FOR AY 2010 - 11 ON THE GROUNDS MENTIONED HEREIN BELOW: - APPEAL IN ITA NO. 216/JP /2014 FILED BY REVENUE . 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT (A) HAS ERRED IN ALLOWING THE DEDUCTION OF RS. 37,59,26,621/ - U/S 10AA OF THE I.T.ACT, 1961 AS THE CONDITIONS LAID DOWN IN 3 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, SECTION 10AA OF THE I.T.ACT, 1961 FOR CLAIMING DEDUC TION ARE NOT FULFILLED. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN ALLOWING RELIEF OF RS. 9,74,41,636/ - OUT OF ADDITION OF RS. 10,94,84,984/ - MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES.' THE APPELL ANT CRAVES THE INDULGENCE TO MODIFY, ALTER, ADD ANY OTHER GROUND OF APPEAL. 4. AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING & MANUFACTURING OF PRECIOUS AND SEMI - PRECIOUS STONES, DIAMONDS AND STUDDED GOLD JEWELLE RY. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 12.10.12 DECLARING TOTAL INCOME OF R.S 5,90,76,690/ - & CLAIMED EXEMPTION U/S 10AA OF THE I.T. ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY O F THE ASSESSEE, ORDER OF ASSESSMENT U/S 143(3) OF THE I.T. ACT WAS PASSED ON 28.03.13, THEREBY DETERMINING THE INCOME OF THE ASSESSEE AT RS. 54,70,62,290/ - . 4 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CON SIDERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE REVENUE AS WELL AS ASSESSEE HAVE PREFERRED THE IR RESPECTIVE APPEALS . FIRSTLY WE ARE DEALING WITH THE APPEAL FILED BY THE REVENUE ON THE GROUNDS MENTION ED HEREIN ABOVE. GROUND NO. 1. 5 . THIS GROUND RAISED BY THE REVENUE IS AGAINST CHALLENGING THE ORDER OF LD. CIT(A) IN ALLOWING THE DEDUCTION U/S 10AA OF THE I.T. ACT, 1961 TO THE ASSESSEE. 6 WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE FIND THAT THE PRESENT ISSUE WITH REGARD TO CLAIMING OF EXEMPTION U/S 10AA OF I.T. ACT AMOUNTING TO RS. 37,59,26,621 IS CONCERNED, THE SAME IS COV ERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT IN ITA NO. 509/JP/2011 FOR AY 2008 - 09 AND THE 5 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, SAID ORDER WAS ALSO FOLLOWED FOR AY 2009 - 10. THE ORDER OF HONBLE ITAT JAIPUR BENCH WAS CHALLENGED BY THE REVENUE BEFORE THE HO NBLE RAJASTHAN HIGH COURT. HOWEVER, THE HONBLE RAJASTHAN HIGH COURT IN APPEAL ITA NO. 222/2012 VIDE JUDGMENT DATED 24.08.17 HAD DISMISSED THE APPEAL OF THE REVENUE AND UPHELD THE VIEW TAKEN BY THE HONBLE ITAT FOR GRANTING DEDUCTION U/S 10AA OF THE ACT. LD. DR ALTHOUGH SUPPORTED THE ORDER OF ASSESSMENT AND DRAWN OUR ATTENTION TOWARDS THE JUDGMENTS CITED IN THE ASSESSMENT ORDER IN FAVOUR OF THE REVENUE. BUT WE REFRAIN OURSELVES GIVING ANY INDEPENDENT FINDINGS MORE PARTICULARLY WHEN THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL WITH THE EARLIER YEARS AND THE COORDINATE BENCH OF HONBLE ITAT HAVE ALREADY DEALT WITH THE SAME GROUND AND DECIDED IN FAVOUR OF ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY , WE APPLY THE SAME FINDINGS IN THE PRESENT CASE WHICH ARE APPLICABLE MUTATIS M UTANDIS IN THE PRESENT CASE. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 6 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, GROUND NO. 2. 7 . THIS GROUND RAISED BY THE REVENUE IS AGAINST CHALLENGING THE ORDER OF LD. CIT(A) IN ALLOWING RELIEF OF RS. 9,74,41,636/ - OUT OF ADDITION OF RS. 10,94,84,984/ - MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES.' 8 . WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. AS PER THE FACTS OF THE CASE, DURING THE ASSESSMENT ORDER, THE AO OBSERVED THAT INFORMATION WAS RECEIVED FROM INVESTIGATION WING THAT ONE PARTY NAMELY KO TSONS IMPEX PVT. LTD. HAS ISSUED BOGUS PURCHASE BILLS TO VARIOUS BENEFICIARIES. FURTHER, THE PARTY HAS ALSO ACCEPTED IN THEIR STATEMENT RECORDED THAT THEY HAVE ISSUED BOGUS BILLS TO VARIOUS PERSONS. THEREFORE, ON THE BASIS OF ABOVE INFORMATION, AO ADDED AN AMOUNT OF RS. 10.94. CRORES IN THE HANDS OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND THE CIT(A) RESTRICTED THE ADDITIONS @ 11% ON THE BOGUS PURCHASES. 7 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, LD. DR RELIED UPON THE ORDERS PASSED BY AO WHEREAS O N THE CONTRARY LD AR SUBMITTED BEFORE US THAT NO ADDITIONS ARE WARRANTED IN THE PRESENT CASE AND SUBMITTED THAT THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED. IT WAS ALSO SUBMITTED THAT THE SALES CORRESPONDING TO THE ALLEGED BOGUS PURCHASES HAVE NOT BEEN DISPUTED. IN SUCH CIRCUMSTANCES, IF SALES ARE NOT DISPUTED, PURCHASES ALSO CANNOT BE DOUBTED. CONSEQUENTLY, IF THE PURCHASES ARE TO BE REDUCED FROM TRADING RESULTS, THEN THE CORRESPONDING SALES SHALL ALSO BE REDUCED. IT WAS FURTHER SUBMITTED THAT THE ASSES SEE HAS ALREADY SUBMITTED THE QUANTITATIVE DETAILS OF SALES AND PURCHASES . LD. AR ALSO SUBMITTED THAT THE REQUIRED NOTICES HAVE NOT BEEN ISSUED TO THE SUPPLIER WHEREAS THE ASSESSEE HAS FILED ALL EVIDENCES TO PROVE GENUINENESS OF THE PURCHASES. IT WAS ALSO SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL . IT WAS ALSO SUBMITTED THAT THE REQUEST FOR CROSS EXAMINATION OF THE DIRECTOR OF THE SAID PARTY WERE SPECIFICALLY REJECTED BY THE ASSESSING OFFICER THEREBY VIOLATING THE PRINCIPLES OF NATUR AL JUSTICE. ALTERNATIVELY, IT WAS ARGUED WITHOUT PREJUDICE THAT THE PROFIT MARGINES IN THE DIAMOND INDUSTRY ARE BETWEEN 1% TO 3% ONLY AND IN THIS RESPECT, REFERENCE WAS DRAWN TO THE REPORT 8 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, OF TASK GROUP FOR DIAMOND SECTOR ISSUED TO MINISTRY OF COMMERC E AND INDUSTRY, GOVT. OF INDIA. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AS WELL AS SUBMISSIONS MADE AND JUDGMENTS CITED BY BOTH THE PARTIES, WE FIND THAT THE AO WHILE PASSING THE O RDER OF ASSESSMENT HAS TAKEN INTO CONSIDERATION THE WIDESPREAD INVESTIGATIONS CARRIED BY THE INVESTIGATION WING, MUMBAI IN THE CASE OF BOGUS ENTITIES / INDIVIDUALS, WHO HAVE ISSUED BOGUS BILLS TO VARIOUS PARTIES AND RESULTING IN TAX EVASION. AFTER CONSIDER ING THE ENTIRE FACTS, AO DEALT WITH ALL THE OBJECTIONS RAISED BY THE ASSESSEE IN THE ORDER OF ASSESSMENT. THE AO RIGHTLY FOLLOWED THE JUDGMENT AFFIRMED BY HONBLE SUPREME COURT IN THE CASE OF M/S KANCHWALA GEMS VRS. JCIT, 288 ITR 10 (SC) WHEREIN IT WAS HEL D THAT MERELY PAYMENT MADE THROUGH ACCOUNT PAYEE CHEQUE IS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE PURCHASES AND EVEN IN THIS PRESENT CASE, NO PAYMENT AT ALL HAS BEEN MADE DURING THE CURRENT YEAR. THE AO ALSO RELIED UPON THE STATEMENT OF THE DIR ECTOR OF M/S KOTSON IMPEX PVT. LTD. WHEREIN HE HAD DESCRIBED 9 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, THE MODUS OPERANDI TO THEIR BUSINESS ACCEPTING THE FACT THAT THEY WERE INDULGED IN ISSUING OF BOGUS BILLS ONLY AGAINST CERTAIN COMMISSION. IN THE SAID STATEMENT SHRI DHARMENDRA N. KOTHARI HAS CAT EGORICALLY DEEMED TO HAVE FLOATED A BOOK CONCERNED IN THE NAME OF M/S KOTSON IMPEX PVT. LTD. THE AO HAS CATEGORICALLY DEALT WITH THE REQUEST OF CROSS EXAMINATION MADE BY ASSESSEE OF THE SAID DIRECTOR OF THE BOGUS PARTY. THE AO HAS RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF C. VASANTLAL AND COMPANY VRS. CIT 45 ITR 206 (SC)(3 JUDGES BENCH) WHEREIN IT WAS OBSERVED THAT THE ITO IS NOT BOUND BY ANY TECHNICAL RULES OF THE LAW OF EVIDENCE. IT IS OPEN TO HIM TO COLLECT MATERIAL TO FACILITATE ASSESSMENT EVEN BY PRIVATE ENQUIRY. BUT, IT HE DESIRES STO LUSE THE MATERIAL SO COLLECTED, THE ASSESSEE MUST BE INFORMED ABOUT THE MATERIAL AND GIVEN ADEQUATE OPPORTUNITY TO EXPLAIN IT. SINCE THE COPY OF THE SAID STATEMENT WAS MADE AVAILABLE TO THE AR OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE ASSESSEE COULD HAVE CALLED THE SAID DIRECTOR AS THE ONUS WAS UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASES. THIS ISSUE IS ALSO SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT 10 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, IN THE CASE OF INDI A WOOLEN CARPET VRS. ITAT AND OTHERS (2002) 178 CTR 420 (RAJ.) ALTHOUGH, LD. AR HAS RELIED UPON THE REPORT OF TASK GROUP FOR DIAMOND SECTOR ISSUED BY MINISTRY OF COMMERCE & INDUSTRY, GOVT. OF INDIA, WHEREIN IT WAS STATED THAT THE DIAMOND MANUFACTURING AND TRADING INDUSTRY OPERATES AT A MARIGIN OF 1% - 3% ONLY AND THAT 2.5% SHALL BE ADOPTED AS REASONABLE PROFIT RATE IN THE SAID INDUSTRY. HOWEVER THE ASSESSEE IN THE PRESENT CASE HIMSELF HAS DECLARED THE NET PROFIT EARNED @ 8.09%, THEREFORE IN SUCH CIRCUMSTANCE S, THE REPORT OF TASK GROUP IS NOT FOUND APPLICABLE IN THE CASE OF ASSESSEE. LD. CIT(A) ALTHOUGH PASSED A DETAILED ORDER BUT HAD RIGHTLY CONCLUDED IN PARA NO. 8.4 THAT THE PURCHASES SHOWN BY THE ASSESSEE FROM M/S KOTSON IMPEX PVT. LTD. REMAIN UNPROVED . BUT RESTRICTED THE ADDITIONS @ 11% OF BOGUS PURCHASES. AFTER CONSIDERING THE FACTS , CIRCUMSTANCES AND JUDGMENTS CITED BY BOTH THE PARTIES IN THE PRESENT CASE, WE ARE ALSO OF THE VIEW THAT O NLY BECAUSE THE AMOUNT HAS BEEN ROUTED THROUGH BANKING CHANNEL WOULD NOT ESTABLISH THE GENUINENESS OF THE 11 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, TRANSACTION AS HELD BY HONBLE JURISIDICTIONAL HIGH COURT IN THE CASE OF NARESH K. PAHUJA (2015) 54 TAXMANN.COM 25 8 . THEREFORE CONSIDERING THE PECULIA R FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND WHILE RELYING UPON THE FOLLOWING JUDGMENTS: - 1) CLT VS BHOLANATH POLY FAB LTD. (20 13) 355 ITR 290 (GUJ). (HC), 2. CIT V SIMIT D, SHETH (2013 ) 356 ITR 451 (GUJ) - (HC) AND 3. CIT VS. SANJAY OIL CAKE INDUST RIES (2009) 316 ITR 274 (GUJ) ( 1C) AND TAKING INTO CONSIDERATION THE FACTS OF THE PRESENT CASE, AND TO ACCOUNT FOR THE PROFIT ELEMENT EMBEDDED IN THESE PURCHASE TRANSACTIONS TO FACTORIZE PROFIT EARNED BY ASSESSEE AGAINST PURCHASE OF MATERIAL IN THE GREY MARKET , WE ARE OF THE CONSIDERED VIEW THAT RESTRICTING THE ADDITIONS @ 11% OF PURCHASES BY LD. CIT(A) IS UNREASONABLE. THE ENDS OF JUSTICE WOULD BE MET IN CASE THE ADDITIONS ARE RESTRICTED @ 6.5 % OF BOGUS PURCHASES. CONSEQUENTLY ORDERS PASSED BY LD. CIT(A) ARE SET ASIDE. THE JUDGMENT CITED BY THE LD. AR ARE OF NO HELP FOR THE ASSESSEE AS THE SAME ARE BASED ON DIFFERENT FACTS. T HE ISSUE OF ACCOMMODATION ENTRIES IS A REALITY, TO ARREST SUCH RAMPANT MALPRACTICES, A RESTRAINT IS ALWAYS INEVITABLE AS WE 12 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, CANNOT EN COURAGE SUCH MALPRACTICE OF OBTAINING ACCOMMODATION ENTRIES TO AVOID THE IMPACT O F LEVIES AND DEFRAUDING REVENUE. IN THE PRESENT CASE, AS THE AO WAS IN POSSESSION OF CERTAIN VALID INFORMATION IN THE FORM OF OATH STATEMENT, THEREFORE IN SUCH CIRCUMSTANCES, WE CAN FIND SUCH A RESTRAINT ADVICE BY THE HONBLE GUJRAT HIGH COURT IN THE CASE OF SMITH P. SHETH (SUPRA) WITHOUT WHICH AVOIDING PAYMENT OF LEVIES AND DEFRAUDING REVENUE WILL CONTINUE UNABATED. SINCE IT IS PROVED ON RECORD THAT ASSESSEE WAS INDULGED IN BO GUS PURCHASES, THEREFORE THE ASSESSEE IS NOT BEING GIVEN BENEFIT TO REDUCE ALREADY GP DECLARED. HENCE NO BENEFIT OF GP IS BEING GIVEN. HENCE WE DIRECT THE AO TO RESTRICT THE ADDITIONS TO THE EXTENT OF 6.5% OF THE BOGUS PURCHASES FOR OVER AND ABOVE THE REG ULAR PROFITS DISCLOSED BY THE ASSESSEE. ACCORDINGLY THIS GROUND RAISED BY THE REVENUE IS DISMISSED. NOW WE TAKE UP ITA NO. 153/JP /2014 FILED BY ASSESSEE 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN UPHOLDING DISALLOWANCE OF DIRECTORS REMUNERATION TO THE EXTENT OF RS. 25,74,000/ - FROM 13 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, PROFITS OF DOMESTIC UNIT OF THE APPELLANT ON THE ALLEGED GROUND THAT DIRECTORS ARE DOING WORK OF BOTH SEZ AND DOMESTIC UNIT OF THE COMPANY. 2. THAT THE L D. CIT (A) IS WRONG ON FACTS IN NOT TAKING INTO CONSIDERATION THE SUBMISSION OF APPELLANT THAT HUNDRED PERCENT OF PROFITS OF RS. 37,53,69,235/ - DERIVED BY ASSESSEE COMPANY FROM ITS SEZ UNIT CLAIMED AS DEDUCTION U/S 1OAA OF I. T. ACT, 61 IS NOT WHOLLY PERTA INS TO PROFITS DERIVED FROM PROVIDING SERVICES I.E. IMPORT OF GOODS FOR THE PURPOSES OF RE - EXPORT OUT OF INDIA FROM SEZ UNIT BUT ARE PROFITS OF RS. 34,41,31,677/ - DERIVED FROM EXPORT OUT OF INDIA OF DIAMONDS MANUFACTURED IN ITS SEZ UNIT AND PROFITS OF RS. 3,12,37,558/ - ARE PROFITS DERIVED FROM PROVIDING SERVICES FROM SEZ UNIT I.E. IMPORT OF GOODS FOR RE - EXPORT OUT OF INDIA. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT (A) IS WRONG AND HAS ERRED IN LAW IN HOLDING THAT PURCHASES OF RS . 10,94,84,984/ - SHOWN BY THE ASSESSEE COMPANY FROM MIS KOTSONS IMPEX P. LTD. MURNBAI REMAINS UNPROVED AND THEREFORE BOOKS OF ACCOUNTS OF ASSESSEE COMPANY HAVE TO BE REJECTED AND INCOME HAS TO BE ESTIMATE WHICH LD. CIT (A) ESTIMATED BY APPLYING G.P. RATE O F 11% ON THE SAID ALLEGED UNVERIFIABLE PURCHASES OF RS. 10,94,84,984I' - AND THEREBY SUSTAINING ADDITION OF RS. 1,20,43,348/ - IN THE 14 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, DECLARED INCOME OF APPELLANT. THE SAID ADDITION OF RS. 1,20,43,348/ - SO SUSTAINED BY LD. CIT (A) IS WRONG, UNJUST AND BAD IN LAW. 4. THAT THE APPELLANT CRAVES THE PERMISSION TO ADD OR TO AMEND TO ANY OF GROUND OF APPEAL OR TO WITHDRAW ANY OF THEM. GROUND NO. 1. 9. VIDE THIS GROUND, THE ASSESSEE HAS CHALLENGED THE PROPORTIONATE DISALLOWANCE OF DIRECTOR'S REMUNERATION CLAIMED UN DER THE TRADING UNIT. THE LD. CIT(A) HAS DISMISSED THE GROUNDS RAISED BY THE ASSESSEE FOLLOWING DECISION OF LD. CIT(A) FOR A.Y. 2009 - 10. FURTHER, FOR A.Y. 2009 - 10, THE HON'BLE TRIBUNAL HAS ALSO DECIDED ISSUE AGAINST THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT IN ASSESSEES OWN CASE AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY , WE APPLY THE SAME FINDINGS IN THE PRESENT CASE WHICH ARE APPLICABLE MUTATIS M UTANDIS IN THE PRESENT CASE. RESULTANTLY, T HIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 15 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, GROUND NO. 2 . 10. SINCE WE HAVE ALREADY DE CIDED THIS GROUND IN THE APPEAL FIL ED BY REVENUE IN ITA NO. 216/JP /2016 ON MERITS AND THE GROUND RAISED IN THE PRESENT APPEAL IS IDENTIC AL TO THAT OF APPEAL NO. 216/JP /2014 . THEREFORE FOLLOWING OUR OWN DECISION IN ITA NO. 216/JP /2014 , WE APPLY THE SAME FINDINGS IN THE PRESENT APPEAL IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS M UTANDIS IN THE CASE OF THE ASSESSEE . RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. GROUND NO. 3. 11 . SINCE WE HAVE ALREADY DE CIDED THIS GROUND IN THE APPEAL FIL ED BY REVENUE IN ITA NO. 216/JP /2016 ON MERITS AND THE GROUND RAISED IN THE PRESENT APPEAL IS IDENTIC AL TO THAT OF APPEAL NO. 216/JP /2014 . THEREFOR E FOLLOWING OUR OWN DECI SION IN ITA NO. 216/JP /2014 , WE APPLY THE SAME FINDINGS IN THE PRESENT APPEAL IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS M UTANDIS IN THE CASE OF THE ASSESSEE . RESULTANTLY, THIS GROUND RAISED BY THE ASSESSE E IS PARTLY ALLOWED . 16 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, GROUND NO. 4 12. THIS GROUND IS GENERAL IN NATURE THUS REQUIRES NO SPECIFIC ADJUDICATION. NOW WE TAKE UP ITA NO. 124/JP /2015 FOR AY 2011 - 12 FILED BY REVENUE. 1.(I) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) IS JUSTIFIED IN GRANTING DEDUCTION OF RS.42,07,25,556/U/S IOAA OF THE ACT, BY HOLDING THAT TRADING OF GOODS IS A SERVICE, ELIGIBLE FOR DEDUCTION U/S 1 OAA OF THE ACT.' (II) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE ID. CIT (A) IS JUSTIFIED IN ENHANCING THE SCOPE OF THE WORD 'SERVICES' BY ADOPTING THE DEFINITION OF WORD 'SERVICES' FROM SECTION 2(Z) AND SECOND SCHEDULE OF SEZ ACT, 2005 AND RULES 76 OF SEZ RULES 2006, IGNORING THAT DEFINITELY THE SAME WAS NOT DEFINED BY THE LEGISLATORS UNDER THE INCOME TAX ACT, AND A LITERAL MEANING OF THE WORD 'SERVICE' WAS RIGHTLY TAKEN BY THE ASSESSING OFFICER,.' (III) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT (A) IS JUSTIFIED IN ALLOW ING DEDUCTION OF RS. 42,07,25,556/ - IGNORING THAT 17 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, THE ASSESSEE FAILED TO FULFILL THE CONDITIONS PROVIDED UNDER SECTION 1 OAA OF THE ACT.,' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 19,87,39,750/ - MADE BY THE AO ON ACCOUNT OF BOGUS PURCHASES. THE APPELLANT CRAVES THE INDULGENCE TO MODIFY, ALTER, AND ADD ANY OTHER GROUND OF APPEAL. GROUND NO. 1(I) TO (III). 13 . SINCE WE HAVE ALREADY DE CIDED THE APPEAL FILED BY REVENUE IN ITA NO. 216 /JP /2014 FOR AY 2010 - 11, ON MERITS AND THE GROUNDS RAISED IN THE PRESENT APPEAL ARE IDE NTICAL TO THAT OF APPEAL NO. 216 / JP /2014 . THEREFORE FOLLOWING OUR OWN DECISION IN ITA NO. 216 / JP /2014 , WE APPLY THE SAME FINDINGS IN THE PRESENT APPEAL I N ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS M UTANDIS IN THE PRESENT CASE . RESULTANTLY, THIS GROUND RAISED BY THE REVENUE IS DISMISSED . GROUND NO. 2 14. THIS GROUND RAISED BY THE REVENUE IS AGAINST CHALLENGING THE ORDER OF LD. CIT(A) IN DELETING THE ADDITIONS OF RS. 19,87,39,750/ - MADE BY AO ON ACCOUNT OF BOGUS PURCHASE. 18 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, 15 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUND RAISED BY THE REVENUE IN ITS DETAILED ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 3. 2.2 4 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 3.2.2 I HAVE DULY CONSID ERED THE FACTS OF THE CASE. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSEE DURING THE FY 2010 - 2011 HAS MADE BOGUS PURCHASES FROM 3 AFOREMENTIONED PARTIES AND THE AO THE ASSESSMENT ORDER IN PAGE 13 HAS OBSERVED AS UNDER: EXAMINATION OF PURCHASE DET AILS, IT IS FOUND THAT THE ASSESSEE HAS ALSO SHOWN PURCHASES FROM THE FOLLOWING PARTY: - S.NO. NAME OF PARTY AMOUNT 1. SHRADHHA TRADING CO. RS. 86,856/ - 2. ANSH MERCHANDISE PVT. LTD. RS. 19,84,09,928/ - 19 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, 3. BANJARA ENTERPRISES RS. 2,42,966/ - TOTAL RS. 19,87,39750/ - INFORMATION HAS BEEN RECEIVED FROM INVESTIGATION WING OF THE DEPARTMENT AT MUMBAI FORWARDING THEREWITH STATEMENT U/S 14 OF THE MAHARASHTRA VALUE ADDED ACT, 2002 OF THE PROPRIETORS OF M/S SHRADHHA TRADING CO. & M/S BANJARA ENTERPRISES. AS PER THESE STATEMENTS, THE ABOVE COMPANY/FIRMS NEVER PURCHASED ANY GOODS & WERE ONLY ISSUING BOGUS SALES INVOICES/BILLS TO THE PARTIES. A COPY OF THE SAID STATEMENT IS HANDED OVER TO THE A/R. IN VIEW OF THE FACT THAT THE QUANTITATIVE DETAILS OF SALES/PURCHASES ARE MATCHING, THE ASSESSEE WAS REQUESTED TO SHOW CAUSE WHY THE PURCHASES MADE FROM ABOVE THREE PARTIES MAY NOT BE TREATED AS UNEXPLAINED BOGUS PURCHASES U/S 69C OF THE 1.T. ACT, 1961 IN THE COMPLIANCE VIDE LETTER DATED 03/03/2014, ASSESSEE PROVIDED COMPLE TE DETAILS OF PURCHASES (PHOTO COPY OF PURCHASE BILLS)MADE FROM THESE 3 PARTIES ALONG WITH THEIR LEDGER COPY MAINTAINED IN THE BOOKS OF ACCOUNTS AND PAYMENT DETAILS, HOWEVER, AO HAS NOT CONVINCED WITH ASSESSEE'S EXPLANATION. IN PAGE 18 OF HIS ASSESSMENT OR DER, AO HAS OBSERVED INTER ALIA AS UNDER: ' ....IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED PURCHASES OF RS. 86,856/ - FROM SHRADHHA TRADING COMPANY, RS. 19,84,09,928/ - FROM ANSH MERCHANDISE P. LTD. AND RS. 2,42,966/ - FROM BANJARA ENTERPRISES 20 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, AND THESE PA RTIES ARE ONLY ISSUING BOGUS SALES INVOICES FOR THE REASONS GIVEN IN DETAIL IN PARAS. THE CASH SE RECEIVED BACK WILL BE AVAILABLE FOR FINANCING SUBSEQUENT PURCHASES FROM UNDISCLOSED PARTIES IN CASH AS SUCH THESE PURCHASES MADE FROM THE UNDISCLOSED PARTIES ARE NOT RECORDED IN BOOKS OF ACCOUNTS AND ACCORDINGLY THE PROVISION OF SECTION 69C ARE CLEARLY APPLICABLE ON ACCOUNT OF THE SALES/PURCHASES OF UNDISCLOSED PARTIES. THEREFORE, THE PURCHASE MADE FROM THESE PARTIES MAY BE TREATED AS UNEXPLAINED BOGUS PURCHASE S U/S 69C OF THE I.T. ACT, 1961. I DISALLOW THE UNVERIFIABLE/BOGUS PURCHASES OF RS. 19,87,39,750/ - AND MAKE TRADING ADDITION OF RS. 19,87,39,750/ - OF THE DECLARED INCOME OF THE ASSESSEE U/ 5 69C OF THE I.T. ACT 1 961.' IT IS PERTINENT TO NOTE HERE THAT AO H AS HELD THE PURCHASES OF RS. 19,87,39,750/ - MADE FROM THESE THREE PARTIES AS NOT PROVED AND NOT GENUINE WHILE THE APPELLANT, DURING THE ASSESSMENT PROCEEDING AS WELL AS APPELLATE PROCEEDING, HAS SUBMITTED THAT IT HAS NOT MADE ANY PURCHASES FROM M/S ANSH ME RCHANDISE PVT. LTD. DURING F.Y. 2010 - 11 RELEVANT TO A.Y. 2011 - 12. APPELLANT HAS ALSO SUBMITTED THAT IT HAS MADE PURCHASE FROM M/S ANSH MERCHANDISE PVT. LTD TO EXTENT OF RS. 19,00,12,120/ - IN THE F.Y. 2009 - 10 RELEVANT TO A.Y. 2010 - 11. THEREFORE, ADDITIONS OF RS. 19,84,09,928/ - 21 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, MADE IN THIS ACCOUNT FOR A.Y. 2011 - 12 IS WRONG. IN SUPPORT OF ITS CONTENTION, APPELLANT HAS ALSO SUBMITTED LEDGER OF ACCOUNTS OF M/S ANSH MERCHANDISE PVT. LTD MAINTAINED IN THE BOOKS OF ASSESSEE FOR FY 2009 - 2010 & 2010 - 2011. A COPY OF THESE SUBMISSIONS HAS ALSO BEEN FORWARDED TO THE AO FOR HIS COMMENTS. I HAVE ALSO PERUSED THE PARA WISE COMMENTS OF THE AC, SUBMITTED VIDE HIS LETTER DT. 24.09.2014, HOWEVER, IT IS FOUND THAT AC HAS REITERATED THE SAME FACTS AS MENTIONED THE ASSESSMENT OR DER. FURTHER, FROM THE DETAIL SHEET RECEIVED FROM DGIT (INVESTIGATION) MUMBAI, IT IS ALSO SEEN THAT ONLY NOTING OF FINANCIAL YEAR ALONG WITH THE TOTAL AMOUNT OF ALLEGED PURCHASE MADE BY THE PARTIES INCLUDING OF THE APPELLANT HAS BEEN GIVEN. REGARDING OTHER PURCHASES FROM M/S SHRADDHA TRADING COMPANY( RS 86,8561=) AND FRO M/S BANJARA ENTERPRISES( RS 2429661=), APPELLANT HAS SUBMITTED THAT THESE PURCHASES ARE OF SPARE PARTS & STORES, MEANT FOR THE USE OF PLANT & MACHINERY IN ITS FACTORY. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS MENTIONED ABOVE, THE ADDITION MADE OF RS. 19,87,39,750/ - IS NOT BASED ON ANY MATERIAL/ EVIDENCE IN THE EYE OF LAW BECAUSE AO HAS SIMPLY RELIED ON THE DETAILS SUPPLIED BY THE INVESTIGATION DIRECTORATE MUMBAI AND HAS NOT DONE ANY FURTHER INVESTIGATION TO CORROBORATE THIS ADDITION. THEREFORE, ADDITION MADE BY 22 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, THE AO ON ACCOUNT OF THESE THREE PARTIES CANNOT BE SUSTAINED AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. RS. 19,87,39,750/ - . ASSESSEE GETS A RELIEF OF RS. RS. 19, 8739,750! - AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY THE REVENUE AUTHORITIES AND JUDGMENT S CITED AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT LD. CIT( A) WHILE DECIDING THE SAID GROUND HAS CORRECTLY APPRECIATED THAT THE ASSESSEE HAS NOT MADE ANY PURCHASES FROM M/S ANSH MERCHANDISE PVT. LTD DURING FY 2010 - 11 RELEVANT TO AY 2011 - 12. IT WAS ALSO RIGHTLY APPR ECIATED THAT PURCHASES MADE BY ASSESSEE FROM M/S ANSH MERCHAND ISE PVT. LTD TO THE EXTENT OF R S. 19,00,12,120 / - IN THE FY 2009 - 10 RELEVANT TO AY 2010 - 11. THEREFORE, A DDITIONS OF RS. 19,84 ,09,928 MADE I N THIS ACCOUNT FOR AY 2011 - 12 WAS FOUND WRONG. BEFORE REACHING TO THE CONCLUSION, LD. CIT(A) SOUGHT RE PORT FROM AO AND AFTER CONSIDERING THE SAID REPORT, LD. CIT(A) RIGHTLY CONCLUDED THAT THE ADDITIO NS MADE OF RS. 19,87,39,750 WERE NOT 23 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, BASED ON ANY MATERIAL/ EVIDENCE IN THE EYE OF LAW AS THE AO HAS SIMPLY RELIED UP ON THE DETAILS SUPPLIED BY THE INVESTIGAT ION DIRECTORATE MUMBAI AND HAS NOT DONE ANY FURTHER INVESTIGATION TO CORROBORATE THIS ADDITION. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD CIT (A) . TH EREFORE, THERE ARE NO REASON S FOR US TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CIT (A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GR OUND RAISED BY THE REVENUE STANDS DISMISSED . 16 . IN THE NET RESULT , THE APPEAL S FILED BY THE REVENUE IN ITA NO. 216/ JP /2014 AND 124/JP /2015 ARE DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IN ITA NO 153/JP /2014 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JAN , 20 1 8 SD/ - SD/ - ( R. C. SHARMA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 .01 .201 8 SR.PS . DHANANJAY 24 I.T.A. NO. 216 & 153/JP/2014 & 124/JP /2015 M.S GOENKA DIAMOND & JEWELLS LTD, / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI