ITO 19(2)(3), MUMBAI V. M SHAILESH & CO., MUMBAI

ITA 3451/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6725 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: K A VAIDYALINGAN
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(3); 142(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAVISH SOOD, JM ITA NO S . 3451 & 3484 /MUM/ 2017 (ASSESSMENT YEAR S : 2007 - 08 & 2012 - 13 ) ASST. CIT - 19(2)(3), ROOM NO. 218, MATRU MANDIR, MUMBAI 400 007 VS. M/S. M. SHAILESH & CO. GE - 4042, BHARAT DIAMOND BOURSE, BKC, BANDRA (E), MUMBAI - 400 051 PAN/GIR NO. AAEFM 6829 P ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI CHAITANYA ANJARIA RESPONDENT BY : SHRI K. A VAIDYA LINGAN DATE OF HEARING : 01.11.2018 DATE OF PRONOUNCEMENT : 22.01 .2019 O R D E R PER SHAMIM YAHYA, A. M.: TH ESE ARE APPEAL S BY THE REVENUE AG AINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 30 (LD.CIT(A) FOR SHORT) DATED 28.02.2017 , PERTAIN ING TO THE ASSESSMENT YEARS (A.Y.) 2007 - 08 AND 2012 - 13. 2. THE COMMON ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN SUSTAINING ADDITION OF 3% OF BOGUS PURCHASE AS AGAINST 8% DONE BY THE A.O. 3. SINCE THE ISSUES ARE COMMON AND CONNECTED AND THE APPEALS WERE HEARD TOGETHER, THE SE HAVE BEEN CONSOLIDATED AND DISPOSED OF BY THIS COMMON ORDER. 4. BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE IS A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF 'TRADING IN DIAMONDS'. THE RETURN OF INCOME FOR THE YEAR UNDER APPEAL WAS FILED ON 15 - 09 - 2 012, 2 ITA NOS. 3451 & 3484/MUM/2017 DECLARING TOTAL INCOME OF RS. 71,60,981/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELECTE D FOR SCRUTINY BY CASS AND NOTICE U/S 143(2) DATED 06 - 08 - 2013 WAS ISSUED AND SERVED ON THE ASSESSEE. NOTICE U/S 142(1) OF THE ACT WAS ISSUED ON 28 - 11 - 2014. THE ASSESSMENT U/S 143(3) OF THE ACT WAS FINALIZED ON 27~03 - 2': - 15, ASSESSING THE TOTAL INCOME AT RS . 1.90,56,840/ - . 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT CAME TO THE NOTICE OF THE AO THAT SEARCH & S EIZURE OPERATIONS WERE CONDUCTED ON 03 - 10 - 2013 BY THE DGIT, INVESTIGATION WING, MUMBAI, IN THE GROUP CASES OF SNRI BHANWARLAL JAIN. DURING THE C OURSE OF THE OPERATION, IT WAS FOUND THAT SEVERAL NAME LENDING DUMMY DIRECTORS, PARTNERS/ PROPRIETORS OF VARIOUS CONCERNS, WHICH WERE LITERALLY CONTROLLED, OPERATED AND MANAGED BY BHANWARLAL JAIN AND THE PERSONS - IN - CHARGE OF THE DUMMY CONCERNS, BELONGS TO THEIR NATIVE PLACE. THOSE PERSONS ADMITTED THIS FACT IN THE SWORN STATEMENTS RECORDED DURING THE COURSE OF SEARCH OPERATION AND THEY HAVE ALSO ADMITTED THAT THEY WERE MADE TO THE POSITION, BY SHRI BHANWARLAL JAIN. IT WAS FOUND THAT THE GROUP CONCERNS ARE A LL PAPER COMPANIES/FIRMS, PROPRIETORSHIP CONCERN WITH NO REAL BUSINESS ACTIVITIES, OPERATING SOLELY WITH THE PURPOSE OF FACILITATING FRAUDULENT FINANCIAL TRANSACTIONS WHICH INCLUDES, AMONG OTHERS, PROVIDING ACCOMMODATION ENTRIES IN THE FORM UNSECURED LOANS TO INTERESTED PARTIES, ISSUING OF BOGUS SALE BILLS TO VARIOUS PARTIES AND PROVIDING A BOGUS FRUNT TO CONCERNS WHICH DO NOT WANT TO IMPORT DIAMONDS IN THEIR OWN HANDS/BOOKS OF ACCOUNTS. POST SEARCH INVESTIGATION REVEALS THAT THE ASSESSEE HAS TAKEN ACCOMMOD ATION ENTRY IN THE FORM OF BOGUS PURCHASES FROM 4 PARTIES, I.E. M/S. DAKSH DIAMONDS, IMPEX GEMS, JEWEL DIAM AND M/S. MILLENNIUM STARS, AMOUNTING TO RS. 2,60,80,440/ - , RS.14,29,5967 - , RS.1,73,51,031/ - & RS. 10,38,37,202/ - RESPECTIVELY, TOTALING TO RS. 14,86,98 ,269/ - . 3 ITA NOS. 3451 & 3484/MUM/2017 6. IN RESPONSE TO THE NOTICES ISSUED, THE ASSESSEE VIDE LETTER DATED 17 - 03 - 2015, CONTENDED THAT THE PURCHASES MADE FROM THESE PARTIES WERE GENUINE AND ALL THESE PURCHASES WERE ENTERED IN THEIR BOOKS OF ACCOUNTS AND PAYMENTS HAVE BEEN MADE THROUGH C HEQUES. AO CONSIDERED THE SUBMISSIONS AND STATING THAT THOUGH THE ASSESSEE COULD ABLE TO PRODUCE THE STOCK REGISTER ENTRY, CHEQUE PAYMENTS, NO OTHER DOCUMENT SUCH AS DELIVERY CHALLAN WERE PRODUCED WHICH LEADS TO PROVE THAT THE PURCHASES SHOWN TO HAVE BEEN MADE FROM THESE PARTIES ARE BOGUS AND THE ONLY INEVITABLE CONCLUSION DRAWN IS THAT THE ASSESSEE MIGHT HAVE MADE THESE PURCHASES FROM GREY MARKETS. BY SAYING SO, AFTER TAKING INTO ACCOUNT THE COMPARATIVE POSITION OF TRADING RESULTS, THE BENEFIT THE ASSESSEE IS GETTING OUT OF THE ACCOMMODATION BILLS AND TAKING INTO THE FACT THAT THE SALES ARE CLAIMED TO BE GENUINE THE GOODS MUST HAVE PURCHASED FROM THE GREY MARKET AND BENEFITED BY MARGIN OF GREY MARKET AND WITHOUT ACCEPTING THE PURCHASE RATE AS MENTIONED IN T HE SUPPLIER'S SALES INVOICE, AO DECIDED TO ESTIMATE THE ADDITIONAL GP MARGIN ON THE TOTAL PURCHASES MADE FROM BHANWARLAL GROUP CONCERNS. THE MARGIN IS ESTIMATED AT 8% AND THE REASONS STATED FOR ADOPTING SUCH PERCENTAGE ARE THAT THE SAME SHOULD TAKE CARE OF THE MARGIN EARNED, MOST OF THE TRADERS OPERATE AT THIS LEVEL OF MARGIN IN THE OPEN MARKET WHICH IS IDENTIFIED BY THE GOVERNMENT BY INTRODUCING BENIGN ASSESSMENT PROCEDURE (BAP) WHO ARE INTO THE MANUFACTURING AND TRADING OF DIAMONDS A PROFIT MARGIN OF 8% O F THEIR TURNOVER, THOUGH ON THE NET PROFIT MARGIN FOR THE PETTY TRADER OPERATING WITHOUT ANY ESTABLISHMENT THE GP WOULD BE ALMOST SIMILAR TO NP AND IT IS ASSUMED THAT THE MARGIN IN THE MARKET FOR A PETTY DEALER WOULD BE 8% AND THE SAME IS ADOPTED FOR PURCH ASES MADE IN CASH FROM GREY MARKET AND FOR WHICH THE BILLS ARE PROCURED FROM BHANWARLAL JAIN GROUP. THE ADDITION, 4 ITA NOS. 3451 & 3484/MUM/2017 @8% ON THE TOTAL PURCHASES FROM THE FOUR PARTIES, OF RS. 14,86,98,269 / - WORKS OUT TO RS. 1,18,95,862/ - AND IS ADDED TO THE TOTAL INCOME . 7. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 3%. HE CONCLUDED AS UNDER: I N DIAMOND TRADE THE RATE OF VAT IS STATED TO BE 1%, COMING TO THE PROFIT MARGIN IN THE TRADE, THE TASK FORCE GROUP FOR DIAMOND INDUSTY CONSTITUTED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED @2% OF TRADING ACTIVITY AND @3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. IT IS ALSO ASCERTAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP WING IS CONSISTENT LY IN THE REGION OF AROUND 1.75% TO 3%. 6.16 DURING THE PRESENT PROCEEDINGS, AR BROUGHT TO NR> NOTICE BY FURNISHING COPIES OF THE RELEVANT R ;SESSMENT ORDERS, THAT THE AO HAS ADOPTED IN APPELLANT'S OWN CASE PROFIT ELEMENT EMBEDDED @ 3% IN THE SUBSEQUENT A SSESSMENTS FINALISED FOR A.Y.2011 - 12, 2014 - 15 ON THE SIMILAR SET OF FACTS. THE RELEVANT PORTION OF THE SAID ASSESSMENT ORDER IS REPRODUCED AS UNDER: ' IN SUCH A SCENARIO, WHEREIN THERE ARE CIRCUMSTANTIAL R EVIDENCES OF OBTAINING OF BILLS FROM BHANWARLAL JAI N GROUP CONCERNS, BUT HAVING GP MARGIN IN SUCH INSTANCES WHICH IS EVEN MORE THAN THE NORMAL GP OF THE ASSESSEE, THE BENEFIT OBTAINED BY THE ASSESSEE WO ULD NOT BE MORE THAN 3% OF THE PURCHASES COST DEBITED AGAINST BHANWARTAL JAIN GROP CONCERNS. THIS SHOULD TAKE CARE OF THE MARGIN EARNED B Y THE ASSESSEE TO INDULGE INTO SUCH TRANSACTION. THE REASON, WHY THIS MARGIN LOOKS PRACTICAL IS THAT MOST OF THE TRADERS IN THE MARKET ACTUALLY OPERATE AT THIS LEVEL OF MARGIN IN THE OPEN MARKET. IN FACT, THIS FACT WAS ALSO IDENTIFIED IN THE REPORT OF THE TASK GROUP CONSTITUTED BY DEPARTMENT OF COMMERCE IN '013, IN WHICH THE MARGIN IN DIAMOND TRADING WAS ACCEPTED TO BE IN T HE RANGE BETWEEN 1 TO 3%. HENCE, T H E MARGIN FOR A PETTY DEALER IN THE MARKET WOULD NOT BE MORE THAN 3%, WHICH IS THE SAME MARGIN THAT IS NOW BEING ADOPTED FOR PURCHASE MADE FROM SUCH DEALERS BY ASSESSEE AND FOR WHICH THE BILLS ARE PROCURED FROM THE BHANWARLAL JAIN GROUP CONCERNS. ACCORDINGLY, THE PROFIT MARGIN EMBEDDED IN THESE TRANSACTIONS IS TAKEN AT 3% OF THE VALUE OF THE PURCHASES MADE FROM THE ABOVE MENTIONED PARTIES AND THE SAID AMOUNT OF RS.36,24,1 14/ - IS ADDED TO THE TOTAL INCOME 6.17 TAKING INTO CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD AND ALSO THE AO HIMSELF ADOPTED 3% AS THE PROFIT MARGIN ON THE TOTAL PURCHASES IN THE SUBSEQUENT SCRUTINY ASSESSMENT PASSED FOR THE A.Y. 2011 - 12 A ND 2014 - 15 ON THE TOTAL PURCHASES FOR THOSE YEARS AND ALSO SOME OF THE PARTIES ARE COMMON FOR THIS YEAR, IF THE SAME PERCENTAGE IS ADOPTED FOR THIS YEAR IT WILL TAKE CARE THE ADDITIONAL PROFIT MARGIN GAINED FROM THE NON - GENUINE 5 ITA NOS. 3451 & 3484/MUM/2017 TRANSACTIONS ENTERED WITH T HE DUMMY CONCERNS OF SHRI BHANWARLAL JAIN GROUP. APPELLANT ALSO SUBMITTED THAT THE GP FOR THE YEAR IS 5.17% AND NP IS 0.77%, IF THE PERCENTAGE FOR THIS YEAR IS ADOPTED @3% OVER AND ABOVE THE PERCENTAGE ALREADY ADMITTED, THAT WILL MEETS THE END OF JUSTICE. IN VIEW OF THE ABOVE, AO IS DIRECTED TO RESTRICT THE ADDITION @3% ON THE PURCHASES OF RS.14,86,98,269/ - MADE FROM THE FOUR PARTIES, AS THE PROFIT ELE MENT EMBEDDED FOR THIS YEAR ALSO. 8. ON SIMILAR REASONING, HE RESTRICTED THE DISALLOWANCE OF A.Y. 2007 - 08 ALSO TO 3%. 9. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL FOR US. 10. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS: 1. M/S. CHORON DIAMOND (I) PVT. LTD . (IN ITA NOS. 4449/MUM/2016 AND OTHE RS VIDE ORDER DATED 30.10.2017) FOR THE PROPOSITION OF 2% DISALLOWANCE OF BOGUS PURCHASE. 2. PR. CIT VS. TEJUA ROHITKUMAR KAPADIA (IN SPECIAL LEAVE PETITION (CIVIL) DIARY NO(S). 12670/2018) FOR THE PROPOSITION THAT WHEN THERE IS NO DEFE CT IN DOCUMENTATION, NO DISALLOWANCE FOR BOGUS PURCHASE IS REQUIRED. 11. UPON CAREFUL CONSIDERATION, WE NOTE THAT THIS IS A CASE OF DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASE IN CASE OF A DIAMOND TRADER. SALES HAVE NOT BEEN DOUBTED. NO DEFECT IN PURCHASE DOCUMENTATION HAS BEEN NOTED. IN IDENTICAL CASE, IN THE CASE OF M/S. CHORON DIAMOND (I) PVT. LTD . (SUPRA) THE CO - ORDINATE BENCH OF THE ITAT HAS HELD AS UNDER: 10. AS COULD BE SEEN FROM THE ABOVE THAT THE COORDINATE BENCH WHILE SUSTAINING THE ORDER OF THE LD.CIT(A) ALSO CONSIDERED THE REPORT OF TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE, WHEREIN IT WAS SUBMITTED THAT NET PROFIT IN DIAMOND MANUFACTURING IS IN THE RANGE OF 1.5% TO 4.5% AND IN TRADING IT IS IN THE RANGE OF 1% TO 3%. THE ITA.NO.4449, 6798 AND 6800/MUM/2016 ITA.NO.4379, 5868 TO 5871/MUM/2016 M/S. CHORON DIAMOND (I) PVT. LTD. ASSESSEE BEFORE US SUBMITTED THAT HE IS INTO 100% EXPORTS OF TRADING OF CUT AND POLISH DIAMONDS. THE TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE ALSO SUGGESTS THAT THE PROFIT MARGIN IN TRADING OF GOODS IS IN THE RANGE OF 1% TO 3%. IN THE CIRCUMSTANCE WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT FROM THE PURCHASES TREATED AS NON - GENUINE AT THE RATE OF 2% UNIF ORMLY FOR ALL THE ASSESSMENT YEARS 2007 - 08, 2008 - 09, 2010 - 11, 2011 - 12 AND 2013 - 14. 6 ITA NOS. 3451 & 3484/MUM/2017 12. WE FURTHER NOTE IN THE PRESENT CASE THE LD. CIT(A) ON SIMILAR REASONING HAS DIRECTED 3% DISALLOWANCE. THE A.O. HIMSELF HAS MADE SIMILAR DISALLOWANCE IN THE SUBSEQUENT YE ARS. IN OUR CONSIDERED OPINION, THERE IS NO INFIRMITY IN TH E SAME. ACCORDINGLY, WE UPHOLD THE SAME. 13. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 . 0 1 . 2 0 1 9 S D / - S D / - ( RAVISH SOOD ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 2 2 . 0 1 . 2 0 1 9 ROSHANI , SR. PS 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 FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI