M/S NISH GEMS , Mumbai V. ITO-21(2)(4), Mumbai

ITA 2441/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3420 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Transfer pricing; Cost of acquisition; Tangible material; Accommodation entries; Borrowed satisfaction
• Section: 143(3); 133(6); 143(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS UNIT NO. 220, 2 ND FLOOR T.V. INDUSTRIAL ESTATE, 248 S.K. AHIRE MARG, WORLI MUMBAI 400 030 PAN: AACFN0678B V. INCOME TAX OFFICER 21(2)(4) PIRAMAL CHAMBERS LALBAUG, MUMBAI 400 012 (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY AMRITA SINGH DATE OF HEARING : 21.10.2020 DATE OF PRONOUNCEMENT : 13 .11.2020 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 33 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 18.01.2019 FOR THE A.Y. 2007 - 08 . 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: - 1) IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED A.O. ERRED IN PASSING THE ORDER U/S 143(3) R.W.S 147 AND T HEREFORE RENDERING THE WHOLE RE - ASSESSMENT BAD IN LAW, THAT TOO 2 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS AFTER A GAP OF FOUR YEARS AND ALSO ON THE BASIS OF BORROWED SATISFACTION AND WITHOUT FURNISHING COPIES OF THE STATEMENTS RECORDED BY DG(INV), MUMBAI FROM THOSE TWO SUPPLIERS. 2) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFIC ER ERRED IN ADDING RS 15,42,185/ - AS ALLEGED ACCOMMODATION BILLS BEING 100% OF THE TOTAL PURCH ASES AMOUNTING TO RS. 15,42,185/ - AND THE COMMISSIONER OF INCOME TAX (A) ERRED IN C ONFIRMING 30%, I.E RS. 4,62,655/ - . A) EVEN THOUGH THE PAYMENT FOR PURCHASES IS MADE FROM THE BOOKS BY A/C PAYEE CHEQ UES AND CANNOT BE TERMED AS NON - GENUINE EVEN THOUGH THE SAME HAS BEEN FULLY ALLOWED BY THE JURISDICTIONAL MUMBAI TRIBUNAL IN RECENT CASE OF RAJEEV M KALATHIL 6727/M/12, GANPA TRAJ A SANGHAVI [I .T.A. NO.2826/MUM/2013] AND RAMESH KUMAR & CO. APPEAL NO. 2959/M UM/2014 DEEPAK POPATLAL GALA [ITA NO 5920/M/13] AND RAMILA P SHAH [ITA NO 5246/M/13]. B) WITHOUT REJECTING THE AUDITED BOOKS OF ACCOUNTS AND WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS. C) WITHOUT APPRECIATING THE FACT THAT ONCE NOTICES U/S 13 3(6) HAVE BEEN SERVED UPON THE PARTIES, THE ONUS OF THE APPELLANT TO PRODUCE THE PARTIES IS DISCHARGED AND ALSO DISREGARDING THE AFFIDAVITS FILED BY THE SAID SUPPLIER. 3 ) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ER RED IN LEVYING PENALTY U/S 271(1 )(C) AND CHARGING INTEREST U/S 234A,B & C & D. 3. BRIEFL Y STATED THE FACTS ARE THAT, ASSESSEE ENGAGED IN THE BUSINESS OF EXPORTERS OF CUT AND POLISHED DIAMONDS, FILED RETURN OF INCOME ON 27.10.2007 FOR THE A.Y .2007 - 08 DECLARING INCOM E OF . 87,141/ - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY M/S. A2 JEWELS AND M/S. KOTHARI & CO. AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM SUCH DEALER S . THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE 3 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS FROM M/S. A2 JEWELS AND M/S. KOTHARI & CO. WHICH WAS REFERRED TO IN THE ASSESSMENT ORDER. THE ASSESSEE PRODUCED PURCHASE BILLS SHOWING DETAILS OF SALES, BANK STATEMENTS, COPY OF LEDGER ACCOUNT SHOWING PAYMENT MADE TO THE SAID PARTIES AND SUBMITTED THAT THE PURCHASES MADE ARE GENUINE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED T HE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS . IT IS THE FINDING OF THE ASSESSING OFFICER SINCE THE PURCHASES MADE BY THE ASSESSEE AND CLAIME D AS EXPENSES IN HIS PROFIT AND LOSS ACCOUNT ARE NOT GENUINE, THE PURCHASES TO THAT EXTENT REMAINED UNVERIFIABLE. THEREFORE, HE TREATED PURCHASES OF . 15,42,185 / - AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) SUSTAINED T HE REOPENING OF ASSESSMENT AND RESTRICTED TO DISALLOWANCE TO 30% OF ALLEGED BOGUS PURCHASES AND SUSTAINED 70% OF THE ADDITION MADE BY THE ASSESSING OFFICER. 4. INSPITE OF ISSUE OF NOTICE NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT B Y THE ASSESSEE. THEREFORE, I PROCEED TO DISPOSE OFF THIS APPEAL ON HEARING THE LD. DR ON MERITS. 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS 6. HEARD LD. DR AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS THE REOPENING OF ASSESSMENT IS CONCERNED, I NOTICED THAT LD.CIT(A) SUSTAINED THE REOPENING OF ASSESSMENT MADE BY THE ASSESSING OFFICER OBSERVING AS UNDER: - 8. THE AO HAS RE - OPENED THE ASSESSMENT ON THE BASIS OF SPECIFIC INFORMATION AGAINST THE ASSESSEE ON THE BASIS OF SE ARCH CONDUCTED IN CASE OF ALLEGED SUPPLIERS CONTROLLED BY ENTRY OPERATOR SHRI RAJENDRA JAIN. THE ALLEGED SUPPLIERS WERE INVOLVED IN ISSUING BOGUS BILLS AND ACCOMMODATION ENTRIES WITHOUT ACTUAL DELIVERY OF THE GOODS. THEREFORE, THE RE - OPENING IS JUSTIFIED AND THE GROUNDS AGAINST RE - OPENING ARE HEREBY DISMISSED. 7. AS COULD BE SEEN FROM THE ABOVE, SINCE THE ASSESSMENT WAS REOPENED BASED ON TANGIBLE MATERIALS AND INFORMATION COMING INTO THE POSSESSION OF THE ASSESSING OFFICER AT A LATER STAGE, WE HOLD THAT TH E REOPENING OF ASSESSMENT U/S 147 OF THE ACT IS VALID AND I DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A). HENCE THE GROUND RAISED BY THE ASSESSEE AGAINST REOPENING OF ASSESSMENT IS DISMISSED. 8. COMING TO THE MERITS OF THE CAS E, O N A PERUSAL OF THE ASSESSMENT ORDER, I FIND THAT THE ASSESSING OFFICER TREATED THE PURCHASES MADE BY THE ASSESSEE FROM M/S. A2 JEWELS AND M/S. KOTHARI & CO. AS NON - GENUINE SOLELY BASED ON THE INFORMATION RECEIVED FROM DGIT (INV.), MUMBAI THAT ASSESSEE HAS BOOKED BOGUS PURCHASES THROUGH ONE OF THE CONCERNS WHICH 5 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS ISSUED ONLY ACCOMMODATION ENTRIES. NO INDEPENDENT ENQUIRIES HAVE BEEN CONDUCTED BY THE ASSESSING OFFICER BEFORE TREATING SUCH PURCHASES AS BOG US. THE ASSESSING OFFICER HAS ISSUED NOTICE U/S. 133(6) OF THE ACT TO THE DEALER S AND M/S. A2 JEWELS HAD RESPONDED TO THE SAME AND CONFIRMED SALE OF .11,69,119/ - TO THE ASSESSEE. 9. I FIND THAT MORE OR LESS ON IDENTICAL ISSUE HAS BEEN DECIDED BY THIS COORDINATE BENCH IN THE CASE OF M/S. AMY DIAM VEGA JEWEL LERY P VT . LTD. V . DCIT IN ITA.NO. 5799 TO 5801/MUM/2016 DATED 28.09.2017 WHEREIN THE COORDINATE BENCH TAKING NOTE OF REPORT OF THE TASK GROUP SUBMITTED TO DEPARTMENT OF COMMERCE ETC., HELD AS UNDER: - 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE AUTHORITIES BELOW. IN THIS CASE THE ASSESSMENTS WERE REOPENED BASED ON THE INFORMATION FROM THE DGIT(INVESTIGATIONS), MUMBAI THAT ASSESSEE IS A BENEFICIARY FROM THE ENTITIES OPERATED BY SHRI BHANWARLAL JAIN/SHRI PRAVEEN KUMAR JAIN WHEREIN THE SEARCH TOOK PLACE AND IT WAS FOUND THAT SHRI BHANWARLAL JAIN/SHRI PRAVEEN KUMAR JAIN WERE PROVIDING ONLY ACCOMMODATION ENTRIES AND THERE WERE NO ACTUAL SALE TRANSACTIONS AND THE ASSESSEE COULD NOT PROVE THE MOVEMENT OF GOODS FROM THE SUPPLIERS TO THE ASSES SEE. IN THE ABSENCE OF DELIVERY CHALLANS, PROPER STOCK RECORDS AND BASED ON THE DEPOSITIONS OF THE SUPPLIERS THAT THEY HAVE PROVIDED ONLY ACCOMMODATION BILLS, THE ASSESSING OFFICER HAS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS OBTAINED ONLY BOGUS BILLS AND ASSESSEE MIGHT HAVE PURCHASED GOODS IN GRAY MARKET. THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT MARGIN ON SUCH PURCHASES AT 8% WHICH THE LD.CIT(A) REDUCED TO 4% TAKING NOTE OF THE REPORT OF THE TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO THE DEPARTMEN T OF COMMERCE OBSERVING AS UNDER: - 6 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS 4.2. THE A.O CALLED UPON THE APPELLANT TO ESTABLISH THE GENUINENESS OF THE PURCHASES. THE AO NOTED THAT THE CONCERNS FROM WHOM PURCHASES WERE SHOWN DID NOT HAVE DOCUMENTS TO PROVE THE DELIVERY OF GOODS OF THE APPELLANT. THE CONCERNS FROM WHOM PURCHASES WE RE CLAIMED TO BE MADE WERE OPERATING FROM PREMISES WHICH WERE IN THE NAME OF BHANWARLAL JAIN & FAMILY. THE SUPPLIERS/ BOGUS PARTIES COULD NOT BE PRODUCED BEFORE THE A.O FOR EXAMINATION. THE A.O THEREFORE CONCLUDED THAT THE APPELLANT HAD MERELY RECEIVED BIL LS BUT NOT THE MATERIAL/GOODS FROM THESE PARTIES. THOUGH THE APPELLANT HAD SHOWN CORRESPONDING SALES AGAINST THE PURCHASES CLAIMED, PURCHASES WERE MOST LIKELY MADE FROM GREY MARKET. WITHOUT BILL AND TO ADJUST THESE TRANSACTIONS, BOGUS BILLS WERE OBTAINED F ROM BHANWARLAL JAIN GROUP. THE A.O CONCLUDED THAT THE DIAMONDS PURCHASED FROM THE GREY MARKET ARE CHEAPER THAN THE DIAMONDS SOURCED FROM GENUINE DEALERS. SUBSEQUENTLY THERE IS AN ELEMENT OF DISCOUNT IN THE CASE OF CASH PURCHASED IN THE GREY MARKET. THE A.O . THEREFORE COMPUTED THE ADDITIONAL G.P EARNED BY THE APPELLANT HAS 8% OF THE PURCHASE COST. ACCORDINGLY, DISALLOWANCE/ ADDITION OF .63,90,742/ - WAS MADE TO THE RETURNED INCOME 4.3. IN THE APPELLATE PROCEEDINGS THE LD.AR SUBMITTED THAT THE APPELLANT WAS ENGAGED IN THE BUSINESS OF TRADING IN POLISHED DIAMONDS AND MANUFACTURING OF JEWELLERY. THE APPELLANT HAD REQUESTED THE A.O. TO FURNISH THE COPIES OF DOCUMENTS RELIED UPON BY HIM FOR TREATING THE PURCHASES AS BOGUS AND TO ALSO ALLOW CROSS EXAMINATION OF TH E ALLEGED PARTIES. NEITHER OF THE REQUEST WERE GRANTED BY THE A.O. THE APPELLANT HAD FURNISHED DETAILED CHART SHOWING NAME OF PARTIES, DATE OF PURCHASE, QUANTITY IN CARATS, AMOUNT IN RUPEES AND DETAILS OF EXPORTS MADE AGAINST EACH PURCHASES. STOCK BOOK REF LECTING THE PURCHASES WERE ALSO PRODUCED. LEDGER ACCOUNTS IN RESPECT OF THE PURCHASES AND COPY OF INVOICES FOR THE PURCHASE AND CORRESPONDING SALES WERE ALSO FURNISHED. IT WAS CONTENDED THAT THE INITIAL BURDEN ON THE APPELLANT TO PROVE THE GENUINENESS OF T HE PURCHASES WAS FULFILLED. THE A.O HAS NOT CONDUCTED ANY ENQUIRY AS REGARDS THE ALLEGED BOGUS 7 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS TRANSACTIONS OF THE APPELLANT. NO DEFECTS HAVE BEEN FOUND IN THE BOOKS. THE COPIES OF THE MATERIAL BASED ON WHICH THE A.O. CONCLUDED THAT THE PURCHASES ARE NOT G ENUINE WAS NOT PROVIDED TO THE APPELLANT. ONCE THE SALES (PRIMARILY EXPORTS) ARE NOT DOUBTED, NO ADDITION CAN BE MADE BY DOUBTING THE PURCHASES. AS REGARDS THE ABSENCE OF DELIVERY CHALLAN, IT WAS SUBMITTED THAT THE A.O COMPLETELY IGNORED CONFIRMATION ON TH E PURCHASE BILLS BY THE APPELLANT BY SIGNING ON THE FACE OF THE BILL AS IS THE PRACTICE IN DIAMOND TRADE. THE ALLEGATION THAT THE PURCHASE IS FROM GREY MARKET IS BASED ON PRESUMPTIONS AND SURMISES. IT WAS ALSO CONTENDED THAT THE ESTIMATION OF GROSS PROFITS @8% WAS QUITE HIGH REFERENCE WAS MADE TO ITS OWN TRANSFER PRICING STUDY REPORT AND THE REPORT OF TASK GROUP SUBMITTED IN FEBRUARY 2013 PRESENTED TO THE COMMERCE AND INDUSTRY MINISTRY. IT WAS ALSO SUBMITTED THAT ALL THE IMPUGNED PURCHASES ARE EXPORTED. POL ISHED DIAMONDS ARE PURCHASED LOCALLY AND EXPORTED. FURTHER, THAT WHERE H FORM IS SUBMITTED, THERE IS NO LEVY OF VAT AND IN THE CASES WHERE VAT IS LEVIED, THE SAME IS REFUNDED SUBSEQUENTLY AFTER EXPORT OF DIAMONDS. THE APPELLANT RELIED ON THE DECISION OF TH E HON'BLE ITAT IN THE CASE OF SAY INDIA JEWELLERS IN ITA NO.6735/MUM/2010 STATING THAT NO ADDITION SHOULD BE MADE. 4.4. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY. IN THE FACE OF CATEGORICAL DENIAL BY THE ALLEGED SUPPLIERS OF DIAMONDS OF ANY REAL SUPPLY OF GOODS, AND THE APPELLANT'S INABILITY TO ESTABLISH THE FACTS TO BE OTHERWISE, THE DISALLOWANCE OF PURCHASES IS CLEARLY IN ORDER. THE ACTION OF THE ASSESSING OFFICER OF DISALLOWING A PERCENTAGE OF IMPUGNED PURCHASES IS IN LINE WITH THE VIEW EXPRESSED IN THE DECISIONS SUCH AS IN THE CASE OF CIT VS. BHOLANATH POLYFAB PVT. LTD. (2013) 355 ITR 290 AND THER EAFTER IN THE CASE OF CIT VS. SIMIT P. SHETH (2013) 219 TAXMAN 85 (GU]. 4.5. IT IS NOTED THAT THERE IS NOTHING DISTINGUISHABLE TO IDENTIFY THE SALES AS CORRESPONDING TO THE PURCHASES. HOWEVER, THE SUBMISSION THAT THE MARGIN ON TRADING IN POLISHED DIAMONDS IS LOW IS SUPPORTED BY THE REPORT OF THE TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE IN WHICH IT WAS REPORTED THAT NET PROFIT IN DIAMOND MANUFACTURING IS IN THE RANGE OF 1.5 TO 4.5% AND IN TRADING IN THE RANGE OF 1 TO 3%. THE APPELLAN TS BUSINESS 8 ITA NO. 2441/MUM/2019 (A.Y. 2007 - 08) M/S. NISH GEMS IS OF TRADING IN POLISHED DIAMONDS IN RESPECT OF THE IMPUGNED PURCHASES. THUS, A MARGIN OF 4% IS CONSIDERED TO BE APPROPRIATE. 10. ON A CAREFUL CONSIDERATION OF THE TOTALITY OF FACTS AND CIRCUMSTANCES AND THE FINDINGS OF THE LD.CIT(A), WE DO NO T SEE ANY VALID REASON TO INTERFERE WITH THE FINDINGS AND THE DECISION ARRIVED AT BY THE LD.CIT(A) IN ESTIMATING THE GROSS PROFIT AT 4% OF THE BOGUS PURCHASES AS AGAINST 8% ESTIMATED BY THE ASSESSING OFFICER. THUS, WE UPHOLD THE ORDER OF THE LD.CIT(A) FOR ALL THESE ASSESSMENT YEARS I.E. 2010 - 11, 2011 - 12 AND 2012 - 13. 10. RESPECTFULLY FOLLOWING THE SAID DECISION, I DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT FROM BOGUS PURCHASES @4% AND RECOMPUTE THE INCOME OF THE ASSESSEE . 11. IN THE RESULT, APPEA L OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 13. 11.2020 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. SD/ - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 13 / 11/2020 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM