SHRI AJIT RIKHABCHAND JAIN, MUMBAI V. DY.CIT CC-1(4), MUMBAI

ITA 3956/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3465 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITNYA ANJARIA
• Keywords: Bogus purchase; Transfer pricing; Accommodation entries

Judgement Text

P A G E | 1 ITA NO.3956/MUM/2018 A.Y. 2008 - 09 SHRI AJIT RIKHABCHAND JAIN VS. DY. COMMISSIONER OF INCOME TAX, CC - 1(4) IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.3956/MUM/2018 (ASSESSMENT YEAR: 2008 - 09 ) SHRI AJIT RIKHABCHAND JAIN 104 NEW HORMUZD APARTMENTS BEHIND KEMPS HOTEL 131 AUGUST KRANTI MARG MUMBAI 400 036 VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1(4) ROOM NO. 902, OLD CGO BUILDING M.K. ROAD, CHURCHGATE MUMBAI 400 020 PAN ABIPJ9943Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUNIL HIRAWAT , A.R RESPONDENT BY: SHRI CHAITNYA ANJARIA, D.R DATE OF HEARING: 25 .04.2019 DATE OF PRONOUNCEMENT: 3 0 .04.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 47, MUMBAI, DATED 29.03.2018, WHICH IN TURN ARISES FROM THE ASSESSMENT ORDER PASSED BY THE A.O UNDER SEC.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT I.T ACT), DATED 21.01.2016. 2. BRIEFLY STATED, THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN DIAMONDS HAD FILED ITS RETURN OF INCOME FOR A.Y. 2008 - 09 ON 09.09.2008 , DECLARING HIS TOTAL INCOME AT RS.6,48,320/ - . ASSESSMENT UNDER SEC.143(3) WA S COMPLETED ON 29.11.2010 AND THE RETURNED INCOME OF THE ASSESSEE WAS ACCEPTED. SUBSEQUENTLY, ON THE BASIS OF INFORMATION RECEIVED BY THE A.O FROM THE DGIT (INV.), MUMBAI THAT THE ASSESSEE HAD TAKEN ACCOMMODATION ENTRIES IN THE FORM OF PURCHASE OF P A G E | 2 ITA NO.3956/MUM/2018 A.Y. 2008 - 09 SHRI AJIT RIKHABCHAND JAIN VS. DY. COMMISSIONER OF INCOME TAX, CC - 1(4) RS.3,86, 904/ - FROM M/S MIHIR DIAMOND DURING THE YEAR UNDER CONSIDERATION, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SEC.147 OF THE I.T. ACT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O IN THE BACKDROP OF THE INFORMATION RECEIVED FROM THE DGIT(INV. ), MUMBAI , DELIBERATED ON THE VERACITY OF THE PURCHASES CLAIMED BY THE ASSESSEE TO HAVE BEEN MADE FROM THE AFOREMENTIONED CONCERN VIZ. M/S MIHIR DIAMOND. IT WAS NOTICED BY THE A.O THAT THE ASSESSEE FAILED TO ESTABLISH THAT THE GOODS WHICH WERE PURCHASED FR OM M/S MIHIR DIAMONDS WERE EXPORTED BY IT. APART THERE FROM, IT WAS OBSERVED BY THE A.O THAT AS THE STOCK REGISTER MAINTAINED BY THE ASSESSEE WAS INCOMPLETE, THEREFORE, THE SAME DID NOT INSPIRE ANY CONFIDENCE AND THUS COULD NOT BE RELIED UPON. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, IT WAS CONCLUDED BY THE A.O THAT THOUGH THE PURCHASE OF DIAMONDS THEMSELVES WERE NOT BOGUS, HOWEVER, IT STOOD PROVED THAT THE ASSESSEE HAD PROCURED THE SAME NOT FROM THE AFOREMENTIONED PARTY VIZ. M/S MIHIR DIAMOND BUT HAD P URCHASE D THE SAME FROM CERTAIN BOGUS PARTIES. IN THE BACKDROP OF HIS AFORESAID DELIBERATIONS THE A.O MADE AN ADDITION OF RS.48,363/ - I.E @ 12.5% OF THE ALLEGED BOGUS PURCHASES OF RS.3,86,904/ - . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOT FINDING FAVOUR WITH THE CONTENTION ADVANCED BY THE ASSESSEE DISMISS ED THE APPEAL. 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER PASSED BY THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE SUBMITTED , THAT AS THE ASSESSEE HAD ALREADY DISCLOSED A G.P. RATE OF 15%, THUS NO FURTHER ADDITION WAS CALLED FOR IN HIS HANDS. ALTERNATIVELY, IT WAS AVERRED BY HIM THAT IN THE TOTALITY OF THE FACTS OF THE CASE THE AUTHO RITIES BELOW P A G E | 3 ITA NO.3956/MUM/2018 A.Y. 2008 - 09 SHRI AJIT RIKHABCHAND JAIN VS. DY. COMMISSIONER OF INCOME TAX, CC - 1(4) HAD ERRED IN MAKING OF EXORBITANT ADDITION @ 12.5% OF THE AGGREGATE VALUE OF THE PURCHASES MADE BY THE ASSESSEE FROM THE AFOREMENTIONED PARTY. 6. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THEM. ADMITTEDLY, AS IS DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES , THE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS AND THEREIN PROVE THE GENUINEN ESS OF THE PURCHASES CLAIMED TO HAVE BEEN MADE FROM THE AFOREMENTIONED PARTY VIZ. M/S MIHIR DIAMOND. IN FACT, IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT PLACE ON RECORD ANY IRREFUTABLE DOCUMENTARY EVIDENCE WHICH COULD SUBSTANTIATE THE AUTHENTICITY OF THE PURCHASE TRANSACTIONS UNDER CONSIDERATION. INSOFAR THE OBSERVATION OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAD PURCHASED THE GOODS FROM THE OPEN/GREY MARKET ARE CONCERNED, WE ARE PERSUADED TO SUBSCRIBE TO THE SAME. HOWEVER, WE AR E UNABLE TO SUBSCRIBE TO THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN THE SAID PURCHASE TRANSACTION , WHICH WE FIND HAD BEEN TAKEN BY THE LOWER AUTHORITIES @ 12.5% OF THE VALUE OF THE PURCHASE S UNDER CONSIDERATION. WE THOUGH ARE NOT OBLIVIOUS OF THE FACT THAT IN RESPECT OF BOGUS PURCHASES MADE IN NORMAL BUSINESS THE COURTS HAD CONSISTENTLY ESTIMATED THE PROFIT MARGIN IN MAKING OF SUCH PURCHASES FROM THE OPEN/GREY MARKET @ 12.5% OF THE VALUE OF SUCH PURCHASE S , BUT THEN NOT LO O SING SIGHT OF THE FACT TH AT UNLIKE THOSE CASES IN THE TRADE LINE OF DIAMOND BUSINESS THE PROFIT MARGIN DOES NOT EXCEED 3%, THEREFORE, IN OUR CONSIDERED VIEW THE ESTIMATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF PURCHASES IN THE CASE BEFORE US BY THE LOWER AUTHORITIES @ 12.5% IS TOTALLY UNJUSTIFIED AND CANNOT BE SUSTAINED. IN FACT, WE FIND THAT THE VAT INVOLVED IN THE BUSINESS OF MANUFACTURING & T RADING OF DIAMONDS WAS 1%, WHILE FOR IN PLACES LIKE SURAT THE SAME P A G E | 4 ITA NO.3956/MUM/2018 A.Y. 2008 - 09 SHRI AJIT RIKHABCHAND JAIN VS. DY. COMMISSIONER OF INCOME TAX, CC - 1(4) WAS FULLY EXEMPT. APART THERE FROM, WE FIND THAT THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME HAD RECOMMENDED PRESUMPTIVE TAX FOR THE DIAMOND INDUSTRY VIZ. @ 2% FOR TRADING ACTIVITY AND @ 3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. FURTHER, PROFIT IN THE CASE OF DIAMOND TRADING FOR COMPUTATION OF ARMS LENGTH PRICE (FOR SHORT ALP) BY THE TRANSFER PRICING WING HAD CONSISTENTLY REMAINED IN THE RANGE OF 1.75% TO 3%. IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS , W E ARE OF THE CONSIDERED VIEW THAT THE ESTIMATION OF THE PROFIT ELEMENT INVOLVED IN MAKING OF PURCHASES BY THE ASSESSEE FROM THE OPEN/GREY MARKET CAN SAFELY BE TAKEN @ 3% OF THE VALUE OF PURCHASES MADE BY IT FROM THE AFOREMENTIONED PARTY VIZ. M/S MIHIR DIAMONDS . O UR AFORESAID VIEW IS SUPPORTED BY THE ORDE R OF THE COORDINATE BENCH OF THE TRIBUNAL VIZ. POPATALAL N. SHAH VS. ACIT 19(2), MUMBAI (ITA NO. 5939/MUM/2016, DATED 08.11.2017). WE THUS IN TERMS OF OUR AFORESAID DELIBERATIONS RESTRICT THE ADDITION IN THE HANDS OF THE ASSESSEE TO RS.11,607/ - (3% OF RS.3 ,86,904/ - ). 7. THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER P RONOUNCED IN THE OPEN COURT ON 3 0 . 04.2019 S D / - S D / - ( SHAMIM YAHYA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 3 0 .04.2019 PS. ROHIT P A G E | 5 ITA NO.3956/MUM/2018 A.Y. 2008 - 09 SHRI AJIT RIKHABCHAND JAIN VS. DY. COMMISSIONER OF INCOME TAX, CC - 1(4) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI