AI Insights
M/s Ankit Diamonds appealed against the orders of the National Faceless Appeal Centre (NFAC) for the assessment years 2007-08, 2012-13, 2013-14, and 2014-15. The appeals were primarily against the disallowance of purchases and loans treated as non-genuine, and the initiation of penalty proceedings. The Tribunal examined the evidence and found that the assessee engaged in transactions with the Bhanwarlal Jain Group, which was involved in providing accommodation entries of bogus sales and unsecured loans. The Tribunal accepted the profit margin of 3% for disallowance on bogus purchases, citing a government report and a CBDT circular. However, it upheld the disallowance of interest on loans and the rejection of the books of accounts.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 123131 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
6 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-06-2023
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
19-04-2023
Assessment Year
2007-2008
Appeal Filed On
08-12-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 3124/Mum/2022 (A.Y.2007-08) ITA No. 3123/Mum/2022 (A.Y.2012-13) ITA No. 3128/Mum/2022 (A.Y.2013-14) & ITA No. 3126/Mum/2022 (A.Y.2014-15) Ankit Diamonds CC 5061-A, C Tower Bharat Diamond Bourse, Bandra Kurla Complex, Bandra (E), Mumbai-400 051 PAN: AAAFA3924D ....... Appellant Vs. DCIT – 19(1) Matru Mandir, Mumbai-400 007 ..... Respondent Appellant by : Shri Himanshu Gandhi Respondent by : Shri Manoj Kumar Sinha, Sr. AR Date of hearing : 20/04/2023 Date of pronouncement : 12/06/2023 2 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds ORDER PER GAGAN GOYAL, A.M: These appeals by assessee are directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 07.10.2022, 11.10.2022, 14.10.2022 & 12.10.2022 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2007-08, 2012-13, 2013-14 & 2014-15 respectively. The assessee has raised the following grounds of appeal in ITA No. 3124/Mum/2022:- 1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming proceeding under section 148 of Income Tax Act, 1961. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs. 6,90,412 i.e. 6% of Rs.1,15,06,875 by treating genuine purchase as suspicious in nature. On the facts and circumstances of the case and law, the Ld. CIT (A) erred in confirming addition of Rs. 52, 19,211 by treating genuine loans as non-genuine. 4. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming charging of Interest under section 234B, 234C of Income Tax Act, 1961. 5. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty proceedings under section 271(1)(c) of Income Tax Act, 1961 6. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing. 2. The brief facts of the case are that assessee partnership firm originally filed its return of income on 24-10-2007 declaring total income at Rs NIL. A search and 3 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds survey action was carried out by the DGIT (Inv.) Mumbai in the case of Shri Bhanwarlal Jain Group on 03-10-2013. The search action resulted into collections of evidence along with the findings which conclusively proved that the said assessee through a web of benami concerns run and operated by them is engaged in providing accommodation entries of bogus sales and unsecured loans to various beneficiaries. It was also formed that assessee also dealt with the Bhanwarlal Jain Group Companies namely M/s Amit Diamonds amounting to Rs 52,19,211/- and M/s Little Diam amounting to Rs 1,15,06,875/-.Based on aforesaid information case of the assessee was reopened u/s. 148 and a notice were also issued dated 21-03-2014. 3. The assessee vide his letter dated 14-04-2014 submitted that the return originally filed should be treated as returned filed in response to notice u/s 148 of the act. it is further mentioned in the statement of the employees of Bhanwarlal Jain Group and Shri Bhanwarlal Jain u/s. 132(4) they admitted that they manage and control the business affairs of all the concerns in which there is no actual business, and their job is to provide accommodation entries with reference to fake sale /purchase and loan/ share capital entries. It was also observed that assessee took unsecured loan amounting to Rs 52, 00,000/- from M/s Amit Diamond and Rs Rs 1, 15, 06,875/- from M/s Little Diam in the form of bogus purchase. Accordingly, AO added Rs 52,19211/- u/s 68 as non-genuine unsecured loans and Rs 920550 being 8% of the total non-genuine purchase of Rs 1,15,06,875/-. Assessee being aggrieved with this order of AO and preferred an appeal before the Ld.CIT (A). The Ld.CIT (A) also upheld the order of AO. 4 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds 4. Assessee being further aggrieved preferred this appeal before us. We have gone through the order of the AO, order of the Ld.CIT (A) and submissions of the assessee along with the case laws relied upon. Assessee raised total 6 grounds of appeal out of those ground no.1 not pressed before us hence dismissed. Ground no. 5 is premature at this stage and ground no. 6 is general in nature hence no adjudication is required. Ground no. 2, 3, and 4 are substantive grounds required our adjudication. It is observed that sales of the assessee were not under challenged by the department hence corresponding entry of purchase with suitable adjustment of extra profit in the form of disallowance must be done. Now the only question before us is about the % to be applied for the purposes of disallowance out of purchase. In this regard we have referred the report of Government of India, Ministry of Commerce relating to diamond industries wherein they have adopted profit margin of 6%. We also accept this report for the purposes of disallowance and the rate of 8% applied by revenue is slashed to 6% relying on this report. In this regard CBDT circular no; 2/2008/dated 22 nd February 2008 also confirmed this rate of 6%. In view of the circular mentioned and facts of the case profit margin of 6% could have been applied, but as we are adjudicating the appeals of the assessee for the assessment years 2007-08, 2012- 13 to 2014-15. It is observed that in the year 2014-15, revenue itself agreed at 3% and we found that there is no change either in the facts of the case or law applicable. In that situation with all degree of fairness, we deem it fit to restrict disallowance up to 3% on the transactions of bogus purchases with fake entry providers. Hence, Ground no.2 is partly allowed with a direction to the AO to restrict disallowance up to 3% on bogus purchase. 5 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds 5. In arriving at this conclusion, we have thoroughly observed the order of the AO and findings of Ld.CIT (A). It is observed that it’s an unchallenged preposition on record that assessee that way Shri Bhanwarlal Jain Group and the modus operandi of Shri Bhanwarlal Jain Group and his associate firms/companies are also established in the government record that they are exclusively engaged in the practice of providing bogus sale purchase bills and fake loan/share capital transactions. In this case other than a meticulous documentation maintained by assessee no any conclusive evidence in favour of their transactions was produce. A lot of water has flown; it’s a known fact about the entry operations by Shri Bhanwarlal Jain Group and parties dealing with them. In such type of cases a very heavy burden lies on the parties to proof that transactions entered by them to proof otherwise. in this case assessee neither proof the physical movement of goods nor bring any person of M/s Amit Diamonds and Little Diam before the AO who can substantiate the version of assessee. If that would have been there certainly assessee would have been rescued with this allegation. 6. Transactions of assessee with Shri Bhanwarlal Jain Group can’t be equated with other parties wherein the documentary evidence filed by the assessee could have been accepted. This fact further strengthens with the statement of Shri Bhanwarlal Jain Group and his associates/ employees given u/s 132(4). In tribunal we have came across that Shri Bhanwarlal Jain Group ultimately came forward by offering certain percentage of profits involved in fake billing and loan transactions without having any iota of genuine business transactions and profits. In such type of situations assessee involved with such type of entry providers must bear a 6 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds higher degree of onus as the counterpart has already accepted, declared, and paid taxes on their earnings of fake billing etc. 7. We have gone through the case laws relied upon by the assessee but are not providing any rescue or relief to the assessee. Considering the facts of the case, discussed above and considering a detailed speaking order of the AO and a strong finding of facts given by Ld.CIT (A). To strengthen our view, we rely on the order of Hon’ble Apex Court in the case of M.J. Essential Oil Company as under: [2023] 148 taxmann.com 448 (SC) J.M.J. Essential Oil Company v. CIT “Section 68, read with sections 80-IC and 271(1)(c), of the Income-tax Act, 1961 - Cash credit (Sales) - Assessee-company, engaged in manufacturing essential oils, had claimed deduction under section 80-IC - Returns were selected for scrutiny wherein Assessing Officer found unaccounted income of Rs. 3 Crores in garb of cash sales - He thus treated entire amount as undisclosed income and imposed penalty under section 271(1)(c) for furnishing inaccurate particulars - Tribunal deleted additions made by AO mainly in view of fact that cash sales made by assessee were accepted by VAT Department as correct and VAT was duly paid on same - Both Assessing Officer and Commissioner (Appeals) had observed that assessee had claimed cash sales only for month of September, 2006 and bills were of specific amount - Some bills did not even contain complete particulars of purchasers and addresses mentioned therein were found to be incorrect - Further, amount of cash sales had been transferred to accounts of partners as cash withdrawals in September itself - High Court by impugned order held that where there was sufficient material on record to show that assessee had fabricated its cash sales, Tribunal could not have deleted penalty levied under section 271(1)(c) merely because sales tax authorities had accepted books of account and VAT was paid on same - Whether SLP filed by assessee against impugned order of High Court was to be dismissed - Held, yes [Para 14 and 15] [In favour of revenue]” 7 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds 8. In accounting and commercial parlance if it is established that one side of fact, i.e., purchase or sales duly confirmed and established on records that the sales or purchase are fake, thereafter the other side can’t take technical arguments to establish otherwise. As in this case Sh. Bhanwar Lal Jain group accepted its modus operandi along with the nature of transactions, i.e., fake bills and unsecured loan etc., now assessee under consideration can’t take shelter of various technicalities notwithstanding the facts we discussed above. 9. As far as ground no. 3 is concerned, our view is being fortified by the factual discussion (supra) and ratio laid down by the Hon’ble Apex Court in the case of [2019] 109 taxmann.com 53 (SC) NDR Promoters (P.) Ltd. v. PCIT as under: “Section 68 of the Income-tax Act, 1961 - Cash credit (Share application money) - Assessment year 2008-09 - During year, assessee-company received money in form of share capital from five companies - Assessing Officer received an information that share capital money received by assessee was bogus as aforesaid five companies from whom it received premium were operated by one, 'TG', Chartered Accountant who had set up about 90 companies for providing accommodation entries - Accordingly, he made an additions under section 68 in respect of impugned share application money received by assessee - It was noted that assessee had failed to produce directors of shareholder companies, though directors had filed confirmations and, therefore, were in touch with assessee - Further, it was found that directors of all these five companies were either employees of 'TG' or close relatives - All five shareholder companies were located at a common address - During search on premises of 'TG', it was found that all passbooks, cheque books, PAN cards etc. belonging to said companies were in possession of 'TG' - High Court by impugned order held that, on facts, impugned additions made under section 68 in respect of share application money was justified - Whether Special Leave Petition filed against impugned order was to be dismissed - Held, yes [Para 12 and 13] [In favour of revenue]” 10. Similar view has been taken in the case of [2019] 103 taxmann.com 48 (SC) PCIT (Central)-1 v. NRA Iron & Steel (P.) Ltd. As the time and again Hon’ble Apex Court has 8 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds come out with the true interpretation of law along with the facts on section 68, It can be safely concluded that on the facts of the case other than identity, other two elements, i.e., Genuineness and creditworthiness not established by the assessee. Considering the facts of the case narrated above and relevant case laws on the issue, we are not inclined to accept the contentions of the assessee. In the result, Ground No. 3 raised by the assessee is dismissed. 11. Ground No. 4 is consequential to Ground No. 2 and 3 decided (supra), hence no separate adjudication is required. 12. In the result appeal of the assessee is partly allowed. 13. Further the assessee has raised the following grounds in ITA No. 3123/Mum/2022 (A.Y.2012-13):- 1. On the facts and circumstances of the case and law, the Ld. CIT (A) erred in confirming disallowance of 93, 56,494 / being 6% of Rs. 15, 42, 74,913 by treating genuine purchase as suspicious. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming rejection of books of account under section 145(3) of Income Tax Act, 1961. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty under section 271(1)(c) of Income Tax Act, 1961. 9 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds 4. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing. 14. In this appeal assessee raised total 4 Grounds, out of which Ground No. 3 is premature and Ground No. 4 is general in nature hence not required any adjudication. 15. Ground No. 1 raised by the assessee is already discussed in detail vide Para Nos. 3, 4, 5, 6 and 7 (supra). As the facts are similar to ITA No. 3124/Mum/2022 (A.Y. 2007-08) (supra), ratio in this appeal also will apply mutatis mutandis. As in this year Ld. CIT (A) has already reduced the disallowance from 8% to 6%, and we confirmed the addition on account of profit margin at 3%. In the result ground 1 raised by the assessee is partly allowed and AO is directed to restrict the same up to 3% of bogus purchase transactions. In the result Ground No. 1 is partly allowed. 16. Ground No. 2 raised by the assessee pertains to rejection of books of accounts is also rejected, as the disallowance on purchases were calculated on estimate basis and upheld also by this Tribunal, so this contention of assessee does not hold water legally and on the facts of the case. In the Result Ground No. 2 raised by the assessee is also rejected. 17. In the result appeal of the assessee is partly allowed. 18. Further the assessee has raised the following grounds in ITA No. 3128/Mum/2022 (A.Y.2013-14):- 10 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds 1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of 31,93,916/ being 5% of alleged purchase of rough diamonds of Rs.6,38,78.319/- and Rs.10,57,041/- being 3% of alleged purchase of polished diamonds of Rs.3,52,34,585/- by treating genuine purchase as suspicious. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs. 29,18,241/- being interest paid on loan by treating genuine loan as non-genuine. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty under section 271(1)(c) of Income Tax Act, 1961. 4. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing. 19. In this appeal assessee raised total 4 Grounds, out of which Ground No. 3 is premature and Ground No. 4 is general in nature hence not required any adjudication. 20. Ground No. 1 raised by the assessee is already discussed in detail vide Para Nos. 3, 4, 5, 6 and 7 (supra). As the facts are similar to ITA No. 3124/Mum/2022 (A.Y. 2007-08) (supra), ratio in this appeal also will apply mutatis mutandis. As in this year Ld. CIT (A) has already reduced the disallowance from 8% to 5%, and we confirmed the addition on account of profit margin at 3%. In the result ground 1 raised by the assessee is partly allowed and AO is directed to restrict the same up to 3% of bogus purchase transactions. In the result Ground No. 1 is partly allowed. 21. Ground No. 2 raised by the assessee pertains to disallowance of interest amounting to Rs. 29, 18,241/- paid on loan. Same can’t be allowed in view of our 11 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds findings in ITA No. 3124/Mum/2022 (A.Y. 2007-08) (supra), vide para 9 and 10, so this contention of assessee does not hold water legally and on the facts of the case. In the Result Ground No. 2 raised by the assessee is also rejected. 22. In the result appeal of the assessee is partly allowed. 23. Further the assessee has raised the following grounds in ITA No. 3126/Mum/2022 (A.Y.2014-15):- 1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs. 8,56,384/- being 3% of alleged purchase of diamonds of Rs. 2,85,46,120/- by treating genuine purchase as suspicious. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs. 5,93,333/- being interest paid on loan by treating genuine loan as non- genuine. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming initiation of penalty under section 271(1)(c) of Income Tax Act, 1961. 4. Appellant craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing. 24. In this appeal assessee raised total 4 Grounds, out of which Ground No. 3 is premature and Ground No. 4 is general in nature hence not required any adjudication. 25. Ground No. 1 raised by the assessee is already discussed in detail vide Para Nos. 3, 4, 5, 6 and 7 (supra). As the facts are similar to ITA No. 3124/Mum/2022 (A.Y. 2007-08) (supra), ratio in this appeal also will apply mutatis mutandis. As in this year Ld. CIT (A) has already reduced the disallowance from 8% to 3%, there is 12 ITA No. 3124/Mum/2022 & Others M/s Ankit Diamonds no reason for us to interfere with the findings of Ld. CIT (A). In the result ground 1 raised by the assessee is dismissed. 26. Ground No. 2 raised by the assessee pertains to disallowance of interest amounting to Rs. 5, 93,333/- paid on loan. Same can’t be allowed in view of our findings in ITA No. 3124/Mum/2022 (A.Y. 2007-08) (supra), vide para 9 and 10, so this contention of assessee does not hold water legally and on the facts of the case. In the Result Ground No. 2 raised by the assessee is also rejected. 27. In the result appeal of the assessee is dismissed. Order pronounced in the open court on 12 th day of June, 2023. Sd/- Sd/- (KULDIP SINGH) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, दिन ांक/Dated: 12/06/2023 Sr. PS (Dhananjay) Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त(अ)/The CIT(A)- 4. आयकर आयुक्त CIT 5. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 6. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai
Other Referred Cases
M.J. Essential Oil Company v. CIT, NDR Promoters (P.) Ltd. v. PCIT, PCIT (Central)-1 v. NRA Iron & Steel (P.) Ltd.
Laws Referred To
Income Tax Act, 1961
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