S.CHAMPAK & CO., MUMBAI V. ACIT 19(3), MUMBAI

ITA 2555/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1915 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 30-12-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HOSHANG B IRANI
• Keywords: Bogus purchase
• Section: 147; 13

Judgement Text

Page | 1 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND MS. KAVITHA RAJAGOPAL, JM ITA No. 2555/Mum/2021 (Assessment Year 2011-12) S. Cham pak & Co. AW 6071/72, Bharat D iam ond Bourse, BKC, Bandra (E ), Mum bai-400 051 Vs. The ACIT Circle-19(3) Room No. 206, Matru Mandir, Tardeo Road, Mumbai-400 007 (Appellant) (Respondent) PAN No. AAAFS5898L Assessee by : Shri Sanjay Parikh, AR Revenue by : Shri Hoshang B Irani, DR Date of hearing: 23.05.2022 Date of pronouncement : 29.06.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by the assessee for assessment year 2011 – 12 against the order passed by the National faceless appeal Centre (NFAC) (the learned CIT A) dated 13/9/2021 wherein the appeal filed by the assessee against the order dated 5/12/2018 passed by the Asst Commissioner of income tax, Circle – 19 (3) Mumbai (hereinafter referred to as the AO) u/s 13 (3) read with Section 17 of the income tax act, 1961 (the act) was dismissed. The learned assessing officer made an addition of Rs 1,15,38,010/– on account of bogus purchases from Page | 2 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 Rajendra Jain group of entry providers being hundred percent of purchases. This was confirmed by the learned CIT – A. 02. The assessee raised following grounds of appeal “A) Addition on account of alleged bogus purchases - Rs. 1,15,38,010/ 1) The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [CIT(A)] erred on facts and in law in upholding the order passed by the Assistant Commissioner of Income Tax 19(3), Mumbai (AO) making an addition on account of alleged bogus purchases of Rs. 1,15,38,010/-. 2) The learned CIT(A) while upholding the addition of Rs. 1,15,38,010/- on account of alleged bogus purchases further erred in holding that that appellant tried to substantiate his claim with the help of fabricated documents which were themselves a smoke screen to cover up the true nature of the transactions. 3) The learned CIT(A) while upholding the addition of Rs. 1,15,38,010/- on account of alleged bogus purchases further erred in holding that the genuineness of the transaction could not be accepted in the absence of documents without appreciating that the appellant had furnished various evidences in support of their claim of purchases. Page | 3 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 4) The appellant prays that the addition made by the AO on account of alleged bogus purchases of Rs. 1,15,38,010/- and as confirmed by the CIT(A), may be deleted. 5) Without prejudice to the above, the learned CIT(A) erred in not appreciating that the appellant having sold the goods purchased from M/s. Aadi Impex and having produced quantitative records and correlation of the purchases and sales could not have confirmed the entire purchases of Rs. 1,15,38,010/-. 6) If your honours are not inclined to delete the entire addition, the addition may be sustained to a reasonable gross margin of the purchases of Rs. 1,15,38,010/-.” 03. Brief facts of the case shows that assessee is a partnership firm engaged in the business of trading in Cotton polished diamonds. It filed its return of income for the year on 26/9/2011 declaring a total income of ₹ 6,730,580/–. The case of the assessee was reopened by issue of notice u/s 148 of the income tax act on 16/3/2016. The reason for the reopening of the assessment shows that during the search and survey action carried out by the investigation wing Mumbai in case of Shri Rajendra Jain on 3/10/2013 it was found that he’s an accommodation entry provided and running several Benami concerns operated by him and his engaged in providing accommodation entries. The name of the assessee was found is a beneficiary where the bill amount of Rs 115,38,010/– was found. The assessee was Page | 4 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 asked to substantiate the transaction of purchases. Assessee was also provided the copy of the statement of accommodation entry provider. The assessee produce the books of accounts, sales register, purchase register along with sale and purchase invoices trying to support his claim that the purchases are genuine and also submitted that transactions were made through banking channel. The learned assessing officer rejected the same and applying the decision of the honourable Supreme Court in case of N K Proteins Ltd versus DCIT dated 20/6/2016 made the addition of hundred percent of such bogus purchases. Accordingly the assessment order u/s 143 (3) read with Section 147 of the act was passed on 05/12/2018 determining the total income of ₹ 18,576,600/–. 04. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the National faceless appeal Centre confirmed the order of the learned assessing officer. 05. On appeal before us, the learned authorised representative submitted a paper book containing 69 pages and also relied upon the decision of the honourable Bombay High Court in case of the principal Commissioner of income tax – 17 versus M/s Mohammad Haji Adam and Co income tax appeal number 1004 of 2016 dated 11 February 2019 to state that when sales are undisputed, the addition of total purchase price cannot be made. He submitted that estimate of profits is required to be made. Page | 5 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 06. The learned departmental representative referred to the order of the learned that assessing officer as well as the learned CIT – A and stating that there is no infirmity in the order of lower authorities in confirming the hundred percent of the purchase price from entry operators. He submitted that the decision cited by learned that AR only applies where there is a consequent sale not disputed by the revenue authority. 07. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that assessee is a company, which is dealing in diamonds and precious stones. During the year it has recorded a sale of Rs. 13,45,31,722/– against the purchases of Rs. 10,65,59,447 and earned a gross profit of Rs 1,05,92,074. The assessee has made a purchase of Rs. 50,41,996/– as per belated 12/05/2010 and Rs. 66,11,394 as per bill dated 1/7/2010 from M/s Adi Impex . The invoices show the quantity of weight in carats of diamonds. The payment is made for such invoices by the account paychecks. At page number 34 onwards of the paper book assessee has submitted the quantitative details of diamond purchased, these diamonds have gone into the sales, the stock register produced before us also confirmed the same. The accounts of the assessee are audited u/s 44AB of the act. Therefore, admittedly in this case sales are not disputed. Honourable Bombay High Court in PCIT versus Messer’s Mohamad Haji Adam and Co (supra) in paragraph number eight is categorically held that when there was no discrepancy between the purchase shown by Page | 6 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 the assessee and since declared, the purchases cannot be rejected without disturbing the sales in case of a trader. Therefore, the addition is to be restricted to the extent of bringing the gross profit rate on purchases at the same rate of other genuine purchases. The honourable High Court also considered the decision of honourable Gujarat High Court in case of NK industries Ltd. In view of the above facts the learned assessing officer is directed to make the addition to the extent of gross profit is directed in the decision of the honourable Bombay High Court. In view of this we allow ground number 6 of the appeal of the assessee to determine a reasonable gross margin of the purchases of Rs 1 15,38,010/– to the file of the learned assessing officer. 08. With respect to the grounds of appeal numbers 1 – 5, we hold that those grounds do not survive in view of our decision in ground number 6 of the appeal hence those grounds are dismissed. 09. In the result appeal of the assessee is partly allowed Order pronounced in the open court on 29.06.2022. Sd/Sd/-- SdSd/-/- (KAVITHA RAJAGOPAL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 29.06.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) Page | 7 ITA No. 2555/Mum/2021 M/s S. Champak & Co.; A.Y. 11-12 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai