Karni Jewellers, Hyderabad, Hyderabad V. ACIT, Circle-4(1), Hyderabad, Hyderabad

ITA 351/HYD/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1081 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 24-11-2020
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Bogus purchase; Search and seizure; Accommodation entries
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A. NO. 351/HYD/2017 ASSESSMENT YEAR: 2007-08 KARNI JEWELLERS, HYDERABAD [PAN: AADFK5720G] VS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI S.RAMA RAO, AR FOR REVENUE : SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING : 24-11-2020 DATE OF PRONOUNCEMENT : 17-12-2020 O R D E R PER A.MOHAN ALANKAMONY, A.M. : THIS APPEAL IS FILED BY THE ASSESSEE FOR THE AY.2007- 08, AGGRIEVED BY THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS)1, HYDERABAD, IN APPEAL NO.0105/CIT(A)-1/ HYD/ 2015-16/2016-17, DATED 30-11-2016. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN THIS A PPEAL. HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE LD.AO, WHO HAD DISALLOWED PURCHASES AGGREGATING TO RS.98,69,910/- B Y TREATING IT TO BE BOGUS PURCHASES. ITA NO.351/HYD/2017 :- 2 -: 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FI RM, ENGAGED IN THE BUSINESS OF TRADING IN JEWELRY. A SEA RCH AND SEIZURE OPERATION U/S.132 OF THE INCOME TAX ACT [ACT] W AS CARRIED OUT IN THE CASE OF SHRI BHANWARLAL JAIN GROUP ON 03- 10-2013, WHEREIN IT WAS REVEALED THAT THEY ARE OPERATING AND MANAGING 70 BINAMI CONCERNS THROUGH WHICH THEY HAD PROVIDED ACCOMMODATION ENTRIES TOWARDS UN-SECURED LOAN S AND BOGUS PURCHASES TO VARIOUS BENEFICIARIES. IT WAS FURTHER REVEALED THAT M/S. BHANWARLAL GROUP CONCERNS HAVE REC EIVED AN AMOUNT OF RS.98,69,702/- FROM THE ASSESSEE-FIRM TH ROUGH BANKING CHANNELS, AGAINST WHICH M/S.BHANWARLAL GROUP CONCERNS HAD ISSUED BOGUS PURCHASE BILLS TO THE ASSES SEE. THEREFORE, THE REVENUE ISSUED NOTICES U/S.148 OF THE A CT TO THE ASSESSEE ON 27-03-2014, IN RESPONSE TO WHICH, THE ASS ESSEE HAD STATED THAT THE RETURN OF INCOME FILED ON 31-10-2007 MAY BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE U/S. 148 OF THE ACT, VIDE LETTER DT.09-09-2014. THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDIN GS, THE ASSESSEE HAD EXPLAINED THAT ONE OF THE PARTNERS OF TH E FIRM [ELDER BROTHER] TRAVELLED TO SURAT IN THEIR OWN CAR AN D CONTACTED THE TRADERS. AFTER VERIFYING THE QUALITY OF THE DIAMONDS ETC., THEY WERE PURCHASED FROM M/S. JEWEL DI AM AND DIRECTLY BROUGHT TO HYDERABAD BY ROAD. IT WAS FUR THER EXPLAINED THAT THE PAYMENT TO THE VENDOR WAS MADE SUBSEQUENT TO THEIR SALE AFTER AFFIXING IT TO THE GOLD OR NAMENTS. IT WAS FURTHER SUBMITTED THAT THE DIAMONDS WERE PURCHASED BY THE ASSESSEE ON CREDIT DUE TO TRUSTWORTHINESS. THE ASSES SEE ITA NO.351/HYD/2017 :- 3 -: ALSO PRODUCED THE STOCK REGISTER IN ORDER TO ESTABLISH TH E PURCHASES TO BE GENUINE. THE ASSESSEE HAD FURTHER EXP LAINED THAT THE DIAMONDS WERE HANDED OVER TO THE MANUFACTURER F OR EMBEDDING IN THE JEWELRY AND TRANSFERRED TO GOLD ACCOU NT. HOWEVER, THE LD.AO TREATED THE SAME AS BOGUS TRANSACTION SINCE DURING THE COURSE OF INVESTIGATION CONDUCTED ON THE SELLER OF THE DIAMONDS IT WAS REVEALED THAT THEY HAD ISS UED BOGUS BILLS TO THE ASSESSEE WITHOUT DELIVERY OF DIAMOND S AND IT WAS ALSO REVEALED THAT THE VENDOR CONCERNS MERELY EXIS TED ON PAPER AND THEY WERE NOT ACTUALLY TRADING DIAMONDS. 4.1. LD.AO FURTHER OBSERVED IN HIS ORDER THAT DURING THE COURSE OF SURVEY CONDUCTED IN THE CASE OF THE ASSESSE E U/S.133A OF THE ACT ON 02-02-2007 IT WAS REVEALED THAT EXCESS STOCK OF DIAMONDS VALUED AT RS.40,17,462/- WAS FOUND IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAD ACCEPTED THE SAME AS UN-ACCOUNTED STOCK OF DIAMONDS AND OFFERED THE SAME IN THE RETURN OF INCOME. KEEPING IN VIEW OF THE ABOVE STATE OF AFFAIRS OF THE ASSESSEE AND THE FINDINGS THAT THE ASSESSEE HAD PURCHASED DIAMONDS VALUED AT RS.98,69,702/- BY WAY OF ACCOUNT PAYEE CHEQUES, WHICH TURNED OUT TO BE BOGUS, TH E LD.AO ADDED THE SAME IN THE HANDS OF THE ASSESSEE. 5. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF TH E LD.AO BY AGREEING HIS VIEW AND FURTHER MADE THE FOLL OWING OBSERVATIONS: HOWEVER, I DISAGREE WITH THE CONTENTION OF THE APPLICANT FOR THE FOLLOWING REASONS: ITA NO.351/HYD/2017 :- 4 -: A. THE APPLICANT SUBMITTED THAT THE PAYMENT WAS MAD E ONLY AFTER THE SALE OF DIAMONDS. THIS IS NOT POSSIBLE AS THE DIAMO NDS SOLD, THE SELLER CANNOT KEEP A TRACK OF DIAMOND USED AND WHET HER THAT PRODUCT HAS BEEN SOLD AS CONTENDED BY THE APPLICANT. THE SE LLER IS IN SURAT WHILE THE APPLICANT WHO IS THE PURCHASER IS IN HYDE RABAD. THE CONTENTION OF HAVING FAITH DOES NOT ARISE IN REGARD TO COMMODITY OF HIGH VALUE AND SUCH BELIEF CANNOT BE KEPT WITH GOOD S ONCE SOLD. B. THE RECEIPT OF PURCHASES IN SURAT OR THE TRAVEL, COULD NOT BE CONFIRMED. C. THE APPLICANT HAS POINTED THAT DURING THE SURVEY THESE ISSUES WERE INFORMED. THIS IS PERTINENT TO NOTE THAT THIS INFOR MATION WAS NOT GENERALLY IN HYDERABAD. THE INFORMATION WAS RECEIVE D FROM BOMBAY AFTER SEARCH AND SEIZURE OPERATION CONDUCTED IN SRI BHANWARLAL GROUP IN WHOSE 'JEWEL DIAM' ARE PART OF IT. THE INF ORMATION OF THIRD PARTY WAS RECEIVED BY THE AO MUCH LATER TO SURVEY. HENCE, THE CONTENTION THAT DURING THE SURVEY, INFORMATION HAS TAKEN ITS FINALITY, CANNOT BE PRESUMED. D. THE APPLICANT HAS NOT SUBMITTED ANY DOCUMENTS RE GARDING GENUINENESS OF JEWEL DIAM, SURAT. WHEN THE JEWEL DIAM THEMSELVES HAS CONFIRMED THAT THESE ACCOMMODATION E NTRIES AND REVEALED THEIR MODUS OPERANDI, THE EXPLANATION GIVE N BY THE APPLICANT FALLS FLAT. THE APPLICANT HAS NOT BROUGHT ANY EVID ENCE TO SHOW THAT STATEMENT OF BHANWARLAL GROUP WERE INCORRECT OR OTH ERWISE. E. ONLY INFORMATION THAT PAYMENTS HAVE BEEN MADE IN CHEQUE, CANNOT BE SOLE CRITERIA FOR ESTABLISHING THE TRANSACTION T O BE GENUINE. AS PER THE MODUS OPERANDI GIVEN DURING THE SEARCH OF BHANW ARLAL GROUP THAT THE WHOLE TRANSACTION WOULD BE CONDUCTED THROU GH BANK ENTRIES AND THE AMOUNT OF MONEY WILL BE RETURNED IN CASH. S INCE APPLICANT ITSELF HAS SUBMITTED THAT SRI KANAIYALAL VARMA WOUL D HANDLE THE PURCHASE ETC AND WOULD GO TO SURAT FOR IT BY ROAD, CASH TRANSACTION AT THIS MEETING POINTS CANNOT BE RULED OUT. IN VIEW OF ABOVE, I FIND THAT THE APPLICANT COMPANY HAS NOT BEEN ABLE TO DISPROVE THE FINDING OF THIS SEARCH IN THE BHANW ARLAL GROUP CASE. WHEN THE SELLER HIMSELF HAS ACCEPTED THAT THESE ARE BOGUS ENTRIES, I FIND NO HESITANCY TO CONFIRM THE ADDITION MADE. THI S ALSO HAS BEEN PROVED BY EXISTENCE OF PARALLEL ACCOUNTS CONTAINING CASH TRANSACTIONS IN THE PEN DRIVE. IN THE LIST, THE NAME OF JEWEL DI AM APPEARS. THE ACCOUNTS IN THE PEN DRIVE HAVE NOT BEEN DISPUTED BY THE APPLICANT BEFORE THE ASSESSING OFFICER OR BEFORE ME. HENCE, I UPHELD THE ADDITION OF RS.98,69,902/- AS BOGUS PURCHASES INTRO DUCED IN THE BOOKS OF ACCOUNT. ITA NO.351/HYD/2017 :- 5 -: 6. BEFORE US, THE LD.AR VEHEMENTLY ARGUED BY STATING TH AT THE PURCHASES MADE BY THE ASSESSEE FOR RS.98,69,702/- IS GENUINE, WHICH IS BACKED BY PAYMENT MADE THROUGH BANK ING CHANNEL AND THE DIAMONDS WERE RECORDED IN THE STOCK R EGISTER OF THE ASSESSEE. LD.AR FURTHER PLEADED THAT OPPORTUNITY WAS NOT GIVEN TO THE ASSESSEE FOR CROSS-EXAMINING THE SELL ER OF THE DIAMONDS, WHO HAD CONFESSED FOR ISSUING BOGUS BILLS TO THE ASSESSEE. HE THEREFORE PLEADED THAT EITHER THE ADDITI ON MADE BY THE LD.AO MAY BE DELETED OR THE MATTER MAY BE REMITTED BACK TO THE FILE OF LD.AO THEREBY PROVIDING AN OPPORTU NITY FOR CROSS-EXAMINATION OF THE VENDOR. 7. THE LD.DR, ON THE OTHER HAND, VEHEMENTLY ARGUED IN SUPPORT OF THE ORDER OF THE LD. AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIDEO CONFERENCE AND CAREFULLY PERUSED THE MATERIAL ON RECO RD. ON EXAMINING THE BALANCE SHEET AND EXAMINING THE DETAILS SUBMITTED BY THE ASSESSEE IN ITS PAPER BOOK, WE FIND TH AT THE TOTAL TURNOVER OF THE ASSESSEE IS AS FOLLOWS: S.NO. AMOUNT RS. 1. SALE OF GOLD ORNAMENTS WITHIN THE STATE 6,29,910 PB PG.NO. 16, 18 2. SALE OF GOLD ORNAMENTS OUT OF STATE 3,88,61,050 PB PG.NO. 16, 18 3. SALE OF DIAMONDS 10,60,000 PB PG.NO. 16, 17 TOTAL: 4,05,50,960 8.1. AGAINST THE TURNOVER OF RS.4,05,50,960/-, THE ASS ESSEE HAS DECLARED NET PROFIT OF RS.1,33,921/- ONLY. THUS, THE ASSESSEES NET PROFIT FROM TRADING OF GOLD JEWELRY AND DIAMONDS ITA NO.351/HYD/2017 :- 6 -: IS ONLY 0.33% OF TURNOVER WHICH IS ABNORMALLY LOW TAK ING INTO ACCOUNT OF THE NATURE OF BUSINESS OF THE ASSESSEE. IT APPARENTLY APPEARS THAT THE ASSESSEE HAS MANIPULATED THE ACCOUNTS TO ARRIVE AT A LOWER PROFIT, BECAUSE IT HAD ALR EADY DECLARED RS.40,45,000/- AS ITS UN-ACCOUNTANT INCOME IN ITS RETURN TOWARDS EXCESS STOCK OF DIAMONDS FOUND DURING T HE SURVEY. IN THIS SITUATION, THE BOOKS OF ACCOUNT AND THE STATEMENT OF ACCOUNTS FURNISHED BY THE ASSESSEE CANNOT BE RELIED UPON. MOREOVER, THERE IS A CATEGORICAL FINDING BY THE INVESTIGATION DEPARTMENT OF THE REVENUE THAT THE ASSESSEE H AD RECEIVED BOGUS BILLS AGGREGATING TO RS.98,69,702/-TOW ARDS ITS PURCHASES WHEREIN THE PAYMENTS WERE MADE THROUGH BANK ING CHANNELS. IT IS ALSO THE FINDING OF THE INVESTIGATION WI NG OF THE REVENUE THAT THOSE CONCERNS WHO HAD ISSUED BOGUS BILLS TO THE ASSESSEE WERE CONCERNS EXISTING ONLY ON PAPERS FOR THE PURPOSE OF ISSUING BOGUS BILLS AND WERE NOT TRADING O R MANUFACTURING CONCERNS. FURTHER, IT IS APPARENT THAT THE ASSESSEE HAS NOT REQUESTED THE REVENUE AUTHORITIES FOR CROSS- EXAMINING THE VENDORS AT THE TIME OF THE PROCEEDINGS BE FORE THEM. THEREFORE, THE ARGUMENT OF THE ASSESSEE THAT PROPE R OPPORTUNITY WAS NOT GIVEN TO THE ASSESSEE FOR CROSS-EXA MINING THE VENDORS WHO HAD CONCEDED FOR GIVING BOGUS BILLS TO THE ASSESSEE FOR PURCHASE OF DIAMONDS, DOES NOT HAVE ANY MERIT. MOREOVER, JUST BECAUSE THE ASSESSEE HAD MADE PAYMENTS THROUGH BANKING CHANNELS TO THE VENDORS AND RECORDED TH E DIAMONDS PURCHASED IN ITS STOCK BOOK DOES NOT MAKE THE TRANSACTIONS TO BE GENUINE WITH CONCLUSIVE EVIDENCE. F URTHER THERE IS NO MATERIALS ON RECORD TO JUSTIFY THAT THE STOCK IS ITA NO.351/HYD/2017 :- 7 -: RECONCILED WITH RESPECT TO PURCHASES, SALES AND CLOSI NG STOCK ITEM WISE. NEEDLESS TO MENTION THAT THERE IS EVERY POSSIB ILITY FOR THE ASSESSEE TO MAKE PAYMENT THROUGH BANKING CHAN NEL AND RECEIVE THE SAME BACK BY WAY OF CASH AND OBTAIN B OGUS PURCHASE BILLS. IT IS ALSO OBVIOUS THAT IN THE NATURE O F BUSINESS CARRIED OUT BY THE ASSESSEE, 0.33% NET PROFIT DECLARED BY THE ASSESSEE IS TOO LOW AND CANNOT BE ACCEPTED. FURTHER EV EN IF 24% OF THE TURNOVER IS ESTIMATED AS THE INCOME OF THE ASSESSEE, THE ASSESSEE SHOULD HAVE EARNED NET INCOME OF APPROX. RS. 98,00,000/-. BUT IN THE CASE OF THE ASSESS EE IT HAS ONLY DECLARED NET PROFIT OF RS. 1,33,921/-. CONSIDERI NG THESE FACTS AND CIRCUMSTANCES OF THE CASE AND THE REPORT OF TH E INVESTIGATION DEPARTMENT OF THE REVENUE, WE ARE OF THE CONSIDERED VIEW THAT THE ADDITION MADE BY THE LD.AO FOR RS.98,69,702/- IS JUSTIFIABLE WHEN THERE IS A CORROBO RATIVE EVIDENCE FROM THE RECORDS MAINTAINED BY THE VENDORS OF THE ASSESSEE THAT THE PURCHASES MADE BY THE ASSESSEE IS BOG US. IT IS ALSO PERTINENT TO MENTION THAT CONSIDERING THE FACTS AN D CIRCUMSTANCES OF THE CASE THE DECISIONS CITED AND RELI ED BY THE ASSESSEE ARE NOT RELEVANT. HENCE, WE HEREBY CONFIRM TH E ORDER OF THE LD.CIT(A) IN THE CASE OF ASSESSEE. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 17 TH DECEMBER, 2020 SD/- SD/- ( P. MADHAVI DEVI ) ( A. MOHAN ALANKA MONY ) JUDICIAL MEMBER ACCOUNTANT MEMBE R HYDERABAD, DATED: 17-12-2020 TNMM ITA NO.351/HYD/2017 :- 8 -: COPY TO : 1.KARNI JEWELLERS, C/O. SRI S.RAMA RAO, ADVOCATE, F LAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO. 9, HIMA YAT NAGAR, HYDERABAD. 2.THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-4(1) , HYDERABAD. 3.CIT(APPEALS)-1, HYDERABAD. 4.THE PR.CIT-1, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.