SMARU GEMS, MUMBAI V. ITO 19(3)(3), MUMBAI

ITA 3621/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0741 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA
• Keywords: Search and seizure; Accommodation entries
• Section: 143(3); 133(6); 132

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL SMC BENCH MU MBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 3621/MUM/2018 (ASSESSMENT YEAR 2007-08 ) SMARU GEMS FW 6070, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI- 400004. PAN: ABGFS6292P VS. ITO - 19(3)(3) 219, MATRU MANDIR, TARDEO, MUMBAI-400007. APPELLANT RESPONDE NT APPELLANT BY : SHRI RAJENDRA B. SHAH WITH MS. DRASHTI SHAH (AR) RESPONDENT BY : SHRI CHAITNYA ANJARIA (DR) DATE OF HEARING : 01.08.2019 DATE OF PRONOUNCEMEN T : 07.08.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE SEP ARATE ORDERS OF LD. CIT(A)-52, MUMBAI DATED 27.04.2018, WHICH IN TURN A RISES FROM THE ASSESSMENT ORDER DATED 25.03.2015 PASSED UNDER SECT ION 143(3) R.W.S 147 OF THE ACT FOR ASSESSMENT YEAR 2007-08. THE ASS ESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. (I) THE LD. COMM. OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING THE ADDITION OF RS. 1,05,257/- TO THE EXTENT OF 5.02% ( 8%-2.98% BEING PROFIT MARGIN FROM ALLEGED HAWALA PURCHASES) OF RS. 20,96, 760/- PURCHASE MADE FROM M/S. VITRAG EVEN THOUGH NO PURCHASES HAVE BEEN MADE BY THE APPELLANT FROM THE SAID PARTY DURING THE PREVIOUS YEAR RELEVA NT TO THE ASSESSMENT YEAR 2007-08. ITA NO. 3621 MUM 2018-SMARU GEMS. 2 (II) YOUR APPELLANT PRAYS THAT THE SAID CONFIRMED B Y THE LD. CIT(A) MAY BE DELETED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED PARTNERSHIP- FIRM ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS , FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 12.10.2007 DE CLARING TOTAL INCOME OF RS. 82,389/-. THE RETURN OF INCOME WAS PR OCESSED ACCEPTING THE RETURN INCOME. SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED ON THE BASIS OF SEARCH AND SEIZURE ACTION WAS CONDUCTED ON RAJENDRA JAIN GROUP ON 03.10.2013. DURING THE COURSE OF SEARCH PR OCEEDING, IT WAS ESTABLISHED THAT RAJENDRA JAIN GROUP WERE RUNNING A PAPER COMPANIES/ PARTNERSHIP FIRM WITHOUT DOING ANY REAL BUSINESS AC TIVITIES, OPERATING SOLELY WITH THE PURPOSE OF FACILITATING FRAUDULENT FINANCIAL TRANSACTION PROVIDING ACCOMMODATION ENTRIES OF UNSECURED LOAN, BOGUS BILLS ETC. THE DGIT(INV.) INFORMED THE ASSESSING OFFICER THAT THE ASSESSEE HAS ALLEGEDLY AVAILED PURCHASES OF RS. 20,96,760/- DURI NG THE FINANCIAL YEAR 2006-07. ON THE BASIS OF SAID INFORMATION, THE ASSE SSING OFFICER FORM AN OPINION THAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. THE ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SEC TION 147 AND ISSUED NOTICE UNDER SECTION 148. IN RESPONSE TO THE NOTICE UNDER SECTION 148, THE ASSESSEE APPEARED AND CONTESTED THE RE-ASSESSME NT PROCEEDING. THE ASSESSEE FILED ITS REPLY AND STATED THAT THEY HAVE NOT MADE ANY PURCHASE OR SALE TRANSACTION WITH THE ALLEGED HAWALA PARTIES DURING THE FINANCIAL ITA NO. 3621 MUM 2018-SMARU GEMS. 3 YEAR. THE ASSESSING OFFICER IN THE ASSESSMENT RECOR DED THAT HE HAS ISSUED NOTICE UNDER SECTION 133(6) TO M/S VITRAG. I N RESPONSE TO THE NOTICE OF ASSESSING OFFICER M/S VITRAG GAVE CONFIRM ATION OF SALE TO THE ASSESSEE OF RS. 20,96,760/-. THE ASSESSING OFFICER ALSO RECORDED THAT THE ASSESSEE WAS CONFRONTED WITH THE CONFIRMATION. THE ASSESSING OFFICER ON THE BASIS OF STATEMENT MADE BY RAJENDRA JAIN REC ORDED UNDER SECTION 132 CONCLUDED THAT THAT ASSESSEE MUST HAVE EARNED P ROFIT BY PURCHASING THE DIAMOND FROM THE GREY MARKET. THE ASSESSING OFF ICER ON HIS OBSERVATION THAT THE MARGIN IN SUCH TRANSACTION ARE 8% AND ACCORDINGLY THE ASSESSING OFFICER DISALLOWED 8% OF ALLEGED NON- GENUINE PURCHASES OF RS. 20,96,760/-. 3. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE SPECI FICALLY CONTENDED THAT THE ASSESSEE/PARTNERSHIP FIRM WAS CREATED ONLY ON 12.10.2006 VIDE PARTNERSHIP DEED DATED 12.10.2006, PARTNERSHIP FIRM /ASSESSEE WAS ALLOTTED PAN ONLY AFTER 12.10.2016. THE ASSESSEE-F IRM WAS ALLOTTED PAN NO. ABGSF6292P. THE ASSESSEE FURTHER CONTENDED THAT THEY HAVE NOT MADE PURCHASES ANY MATERIAL FROM THE SAID HAWAL A DEALER NAMELY M/S VITRAG. THE LD. CIT(A) AFTER CONSIDERING THE SU BMISSION OF ASSESSEE CONCLUDED THAT ASSESSING OFFICER NOT DOUBTED WHETHE R THE PURCHASES MADE FROM THE SAID PARTY AS CLAIMED BY ASSESSEE. HO WEVER, THE LD. CIT(A) WAS OF THE VIEW THAT THE TAX CAN BE LEVIED O NLY ON THE REAL INCOME. IT IS FURTHER CONCLUDED THAT PROFIT FROM TH E BUSINESS CANNOT BE ITA NO. 3621 MUM 2018-SMARU GEMS. 4 ASCERTAINED WITHOUT DEDUCTING COST OF PURCHASES FRO M SALE OTHERWISE IT WOULD AMOUNT TO LEVY OF INCOME AND GROSS RECEIPT OR SALES WHICH IS NOT PERMISSIBLE UNLESS IT IS SPECIFICALLY AUTHORISE TO DO SO IN THE PARTICULAR PROVISION CONTAINED IN THE ACT. THE LD. CIT(A) BY F OLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN HARIRAM BHAMBHANI (ITA NO. 313 OF 2013) AND SIMIT P. SHETH (38 TAXMANN.COM 385) HELD THAT NOT THE ENTIRE PURCHASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES CAN BE ADDED TO THE INCOME OF THE ASSESSEE. THE DEP ARTMENT HAS CONSIDERED 6% OF PROFIT MARGIN IN CASE OF GEMS & JE WELLERY IS REASONABLE FOR AN ASSESSEE WHICH IS NOT INVALID IN HAWALA PURCHASES. THE LD. CIT(A) CONCLUDED THAT IT WOULD BE APPROPRIATE A FTER REASONABLE MARGIN ARISING TO THE ASSESSEE ON ACCOUNT OF ALLEGE D HAWALA PURCHASES IS ADOPTED OF 8%, HOWEVER, THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF ADDITIONAL PROFIT MARGIN ARISING OF HAWA LA PURCHASE, WE SHOULD REDUCE THE PROFIT MARGIN ALREADY SHOWN BY AS SESSEE IN ITS BOOKS FROM THE SAID PROFIT MARGIN ADOPTED AT 8% OF ALLEGE D HAWALA PURCHASE AND GRANTED PARTIAL RELIEF TO THE ASSESSEE. BEFORE US, THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE ASSESSEE CAM E INTO EXISTENCE ONLY ON 12.10.2006 AND THE ASSESSEE HAS NO OCCASION TO MAKE PURCHASES ON 01.04.2006 AND ON 30.06.2006. 4. WE HAVE NOTED THAT THE ASSESSEE HAS PLACED ON RECOR D COPY OF PARTNERSHIP-DEED DATED 12.10.2006 PAGE NO. 1 TO 13 , COPY OF PAN CARD ITA NO. 3621 MUM 2018-SMARU GEMS. 5 ISSUED TO THE ASSESSEE ALLOTTING PAN NO. ABGFS6292P BEARING DATED 12.10.2006 (DATE OF INCORPORATION). THE ASSESSEE IN REPLY TO THE SHOW- CAUSE NOTICE BEFORE THE ASSESSING OFFICER HAS SPECI FICALLY STATED THAT THE ASSESSEE HAS NOT MADE ANY PURCHASE OR SALE TRANSACT ION WITH M/S VITRAG DURING THE FINANCIAL YEAR 2006-07. WE HAVE NOTED TH AT DESPITE THE SPECIFIC CONTENTION OF THE ASSESSEE THAT THEY HAVE NOT MADE ANY PURCHASES FROM M/S VITRAG. THE ASSESSING OFFICER CO NCLUDED THAT THE ASSESSEE MUST HAVE PURCHASED THE DIAMOND IN THE GRE Y MARKET FROM THE REGULAR DEALER. THE LD. CIT(A) ALSO CONFIRMED THE A CTION OF ASSESSING OFFICER WITHOUT APPRECIATING THE DOCUMENTARY EVIDEN CES FURNISHED BY ASSESSEE WITH REGARD TO DATE OF INCORPORATION/CREAT ION OF TENANCY, PAN CARD AND REGISTRATION UNDER MAHARASHTRA VALUE ADDED TAX. THEREFORE, WE FOUND FORCE IN THE CONTENTION OF LD. AR OF THE A SSESSEE THAT DURING THE RELEVANT PERIOD IN WHICH THE ALLEGED HAWALA TRA DER I.E. M/S VITRAG HAS SHOWN THE TRANSACTION, THE ASSESSEE WAS NOT IN EXISTENCE. THEREFORE, THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE ALLOWE D AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/08/2019. SD/- SD/- SHAMIM YAHYA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 07.08.2019 SK ITA NO. 3621 MUM 2018-SMARU GEMS. 6 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR SMC BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI