B. VIJAYKUMAR JEWELLERS, MUMBAI V. DCIT CC 4(2), MUMBAI

ITA 2835/MUM/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0061 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Assessee Lawyers: VIJAY KUMAR BIYANI
• Keywords: Bogus purchase; Cost of acquisition
• Section: 148

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 2835 /MUM/ 2 017 (ASSESSMENT YEAR 20 07 - 08 ) B. VIJAYKUMAR JEWELLERS THE PLAZA, 11 TH FLOOR 55, GAMDEVI MUMBAI - 400 007. VS. DCIT CC - 4(2) MUMBAI ( APPELLANT ) ( R ESPONDENT ) PAN NO . AACFB8561H ASSESSEE BY SHRI VIJAY KUMAR BIYANI DEPARTMENT BY MS. N. HEMALATHA DATE OF HEARING 2 2 . 8 . 201 7 DATE OF PRONOUNCEMENT 22 . 8 . 201 7 O R D E R THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1 9.1.2017 PASSED BY THE LEARNED CIT(A) - 52, MUMBAI AND IT RELATES TO A.Y. 2007 - 08. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN PARTIALLY CONFIRMING THE ADDITION RELATING TO BOGUS PURCHASES. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND JEWELLERY. THE REVENUE CARRIED OUT SEARCH AND SURVEY OPERATION ON SOME OF THE SURAT BASED DIAMOND CONCERNS. TH OSE GROUP OF CASES COVERED BY THE ACTION WAS REFERRED TO AS SHRI GAUTAM JAIN AND OTHERS . IT WAS NOTICED THAT THESE CONCERNS WERE INVOLVED IN PROVIDING NON - GENUINE PURCHASE BILLS AND ALSO UNSECURED LOAN ENTRIES , I.E. T HE Y WERE CONCERNS ON PAPER WITHOUT DOING ANY REAL BUSINESS ACTIVITY. IT WAS NOTICED THAT THE ASSESSEE HAS PURCHASED DIAMONDS FROM TWO CONCERNS NAME D M/S. KRISHNA DIAMOND PVT. LTD. & M/S. MIHIR DIAMOND(PROPRIETARY CONCERN OF GAUTAM B. JAIN). THE AG GREGATE AMOUNT OF PURCHASES MADE FROM THESE TWO CONCERNS WAS ` 209.42 LAKHS. BASED ON THE ABOVE SAID INFORMATION , THE ASSESSING OFFICER REOPENED THE AS SESSMENT BY ISSUING NOTICE U/S. 148 OF THE ACT. THE ASSESSEE WAS ALSO SUPPLIED WITH A COPY B. VIJAYKUMAR JEWELLERS 2 OF REASONS FOR REOPENING. BEFORE THE ASSESSING OFFICER, THE ASSESSEE CONTENDED THAT PURCHASES MADE FROM THESE PARTIES ARE GENUINE. THE ASSESSEE FURNISHED COPIES OF PURCHASE BILLS AND ALSO DETAILS OF PAYMENT MADE TO THESE CONCERNS. HOWEVER, THE ASSESSEE COULD NOT FURNISH ANY OTHER DOCUMENTS SUCH AS DELIVERY CHALLANS, STOCK REGISTER, OUTWARD AND INWARD REGISTER, CUSTO M APPRAISAL REPORT ETC. SINCE THE ASSESSEE COULD REC ONCILE THE PURCHASE S AND SALES, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE MIGHT HAVE PURCHASED DIAMONDS FROM OPEN MARKET FROM SOME OTHER PARTIES AND NOT FROM THE SUPPLIERS STATED ABOVE . THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE WOULD NO T HAVE MADE PROFIT OF MORE THAN 8% OF THE PURCHASE COST. TO SUPPORT HIS CONCLUSION S , THE ASSESSING OFFICER REFERRED TO THE BUDGET SPEECH GIVEN BY THE FINANCE MINISTER ON 28.2.2007, WHEREIN HON'BLE FINANCE MINISTER HAVE INTRODUCED A BENIGN ASSESSMENT PROCE DURE (BAP) FOR THE ASSESSEE WHO ARE ENGAGED INTO MANUFACTURING AND/OR TRADING OF DIAMONDS AND PROPOSED TO ASSESS INCOME AT 8% OF THE TURNOVER . ACCORDINGLY , THE ASSESSING OFFICER COMPUTED PROFIT FROM THE ALLEGED BOGUS PURCHASES AT 8% OF PURCHASE VALUE WHIC H WORKED OUT TO ` 16,75,361/ - . THE LEARNED CIT(A), IN PRINCIPL E, AGREED WITH THE VIE W TAKEN BY THE ASS ESSING OFFICER. HOWEVER, HE TOOK THE VIEW THAT PROFIT RATE OF 8% ADOPTED BY THE AO IS ON HIGHER SIDE. THE LEARNED CIT(A) REFERRED TO THE INSTRUCTION NO. 2 /2008 DATED 22.2.2008 ISSUED BY THE CBDT, WHEREIN RATE OF PROFIT UNDER BENIGN ASSESSMENT PROCEDURE WAS REDUCED TO 6% IN RESPECT OF GEMS AND JEWELLERY BUSINESS. ACCOR D I NGLY, HE DIRECTED THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 6% OF THE VALUE OF AL LEGED BOGUS PURCHASE S . STILL AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBU N AL. 3. I HEARD THE PARTIES AND PERUSED THE RECORD. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS MADE ONE TO ONE RECONCILIATION OF PURCHASES OF DIAMONDS WITH SALES A ND IT HAS DISCLOSED TRANSACTIONAL MARGIN OF 5. 61 % ON SALES . HE SUBMITTED THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS ALLOWED SET OFF OF PROFIT RATE DISCLOSED BY THE ASSESSEE IN THE CASE OF RATNAGIRI STAINLESS P LTD (ITA NO.4463/MUM/2016 DATED 04 - 04 - 2017). HE SUBMITTED THAT THE SUPPLIERS HAVE CONFIRMED THE SALES MADE TO THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT B. VIJAYKUMAR JEWELLERS 3 THE LD CIT(A) WAS NOT JUSTIFIED IN PARTIALLY SUSTAINING THE ADDITION. IN THE ALTERNATIVE, HE SUBMITTED THAT THE LD CIT(A) SHOULD HAVE SUSTAINED ONLY MARGINAL AMOUNT. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ADDITION WAS MADE BY THE AO ON THE BASIS OF DEFINITE INFORMATION, I.E., THE SUPPLIERS HAVE DEPOSED BEFORE THE REVENUE THAT THEY DID NOT SUPPLY THE MATERIALS. HOWEVER , SINCE THE AS SESSEE HAS RECONCILED THE PURCHASES WITH SALES , THE TAX AUTHORITIES HAVE ADDED ONLY THE PROFIT ELEMENT. ACCORDINGLY SHE SUBMITTED THAT THE ORDER PASSED BY LD CIT(A) SHOULD BE SUSTAINED. 5. I NOTICE THAT THE ASSESSEE COULD NOT CONCLUSIVELY PROVE THAT THE DIAMONDS WERE PURCHASED ONLY FROM THE CONCERNS STATED ABOVE, SINCE THE ASSESSEE DID NOT PRODUCE THOSE PARTIES BEFORE THE AO. HENCE ONE OF THE POSSIBLE VIEWS IS THAT THE ASSESSEE COULD HAVE PURCHASED THE DIAMONDS FROM SOME OTHER PERSON AND COULD HAVE O BTAINED ONLY THE BILLS FROM THE ABOVE SAID CONCERNS. THERE IS ALSO A POSSIBILITY; IN THAT CASE, THE ASSESSEE COULD HAVE PURCHASED GOODS AT A PRICE LOWER THAN THE APPARENT CONSIDERATION. THE TASK OF THE TAX OFFICIALS WAS TO DETERMINE THE PROFIT ELEMENT EM BEDDED IN THE SAID PURCHASE. THE AO HAS ESTIMATED THE SAME AT 8% AND THE LD CIT(A) HAS ESTIMATED THE SAME AT 6%. ACCORDING TO LD A.R, THESE DIAMONDS HAVE BEEN EXPORTED AND HENCE THERE WILL NOT BE MUCH VARIATION IN THE PRICE AS THE PRICES OF DIAMONDS WOUL D DEPEND UPON THE QUALITY. THERE IS MERIT IN THIS SUBMISSION ALSO. THE LD A.R, IN THE ALTERNATIVE, SUBMITTED THAT THE PROFIT ELEMENT MAY BE ESTIMATED AT A REASONABLE RATE. I HAVE NOTICED EARLIER THAT THE ASSESSEE HAS DECLARED TRANSACTIONAL MARGIN OF 5.61% ON THE SALES. HENCE, CONSIDERING THESE ASPECTS, I AM OF THE VIEW THAT THE PROFIT ESTIMATED BY LD CIT(A) AT 6% IS ON THE HIGHER SIDE. ACCORDINGLY I MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO SUSTAIN THE ADDITION TO 3% OF THE VALUE OF ALLE GED BOGUS PURCHASES AND IN MY VIEW, THE SAME WOULD MEET THE ENDS OF JUSTICE. I ORDER ACCORDINGLY. B. VIJAYKUMAR JEWELLERS 4 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 2 2 . 8 . 201 7. SD/ - (B.R.BASKARA N) ACCOUNTANT MEMBER MUMBAI ; DATED : 2 2 / 8 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, M UMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI