LYPSA DIAMONDS, MUMBAI V. ITO WD- 30(2)(1), MUMBAI

ITA 4436/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4367 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 09-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MICHAEL JERALDLD
• Assessee Lawyers: SUCHEK ANCHALIYA LD
• Keywords: Bogus purchase; Unexplained cash credit; Unexplained expenditure; Principle of natural justice; Earning of tax free income; Commercial expediency; Retraction; Reason to believe; Reassessment proceedings; Rule 8D
• Section: 69C; 143(3); 142(1); 14A; 201; 274; 143(2); 43; 13; 22; 147; 68; 145; 148

Judgement Text

M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANO J KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFER ENCING MODE) ./ I TA NO . 4 43 4 / MU M/ 201 8 ( / ASSESSMENT YEAR : 201 1 - 12 ) & ./ I TA NO . 4 435 / MU M/ 201 8 ( / ASSESSMENT YEAR : 201 2 - 1 3 ) & ./ I TA NO . 4 43 6 / MU M/ 201 8 ( / ASSESSMENT YEAR : 201 3 - 1 4 ) LYPS A DI AMONDS 2 ND FLOOR, MEHTA MA HAL NORTH SIDE, 15 TH MA THEW ROAD CHARNI ROAD, MUMBAI 400 004 / VS. INCOME TAX OFFICER WARED 30(2) (1) C - 13 , 6 TH FLOOR , PRATYAKSHKAR BHAWAN BAN D RA KURLA COMPLEX , BAN D RA (E AST) MUMBAI 400 0 51 ./ ./ PAN/GIR NO. AA A FL - 0410 - F ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI SUCHEK ANCHALIYA , LD. AR REVENUE BY : SHRI MICHAEL JERALD - LD. DR / DATE OF HEARING : 1 5 /1 0/ 2020 / DAT E OF PRO NOUNCEMENT : 22/10/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. 1 AFORESAID APPEAL S ARE RECALLED MATTER SINCE THE APPEALS WERE EARLIER DISPOSED - OFF VIDE ORDER DATED 27/03/2019. HOWEVER , THE ORDER H AS M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 2 SUBSEQU ENTLY BEEN RE CA LLE D, UPON ASSESSEE S MIS C . APPLICATION MA N OS. 413 - 415/MUM/2019 ORDER DATED 09/12/2019. ACCO R DINGLY, THE APPEALS HAVE COME UP FOR FRESH HEARING BEFORE THIS BENCH. FACTS AS WELL AS ISSUE S ARE STATED TO BE PARI - MATERIA THE SAME IN A LL THE THR EE YEARS AND ADJUDICATION IN ANY ONE Y EA R SHALL EQUALLY APPLY TO THE OTHER YEAR ALSO . THE ORDER UNDE R CHALLENG E IS COMMON ORDER FOR ALL THE THREE YEARS. 1. 2 I N THE ABOVE BA CKGROUND , T HE APPEAL FOR AY 2011 - 12 CON TEST THE ORDER OF LD. COMMISSION ER OF INCO ME TAX (APPEALS) - 41,MUMBAI [CIT(A)], APPEALS N OS . CIT(A) - 41/IT - 13 0 - 132/ 16 - 17 DATED 12/04/2018 ON FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD . CIT( A) ERRED IN CONFIRMING THE INITIATION OF THE REASSESSMENT P ROCEEDING UNDER SECTION 147. 2. ON THE FACTS AND CIRCUMS TA NC ES OF THE CASE AND IN LAW THE LD . CIT(A) FAILED TO CONSIDER THAT REAS SESSMENT PROCEEDINGS CANNOT BE INITIATED. A. NO REASSESSMENT CAN BE MADE JUST TO MAKE AN ENQUIRY OR VERIFICATION . B. REASSESSM ENT PROCEE DINGS CANNOT BE INITIATE MERELY ON THE INFORMA TI ON RECEIVED FROM INVESTIGATION WING. C. REASSESSMENT PROCEEDING CANNOT B E INITIATED WHEN THE L D . CIT(A) HAVE REASON TO SUSPECT AND NOT REASON TO BELIEVE. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AN D LAW THE LD CIT(A) ERRED IN CONFIRMING THE ASSESSMENT O RD ER UNDER SECTION 143 SUB SECTION 3 R W S 147 OF INCOME TAX ACT WHICH IS PASSED AGAINST THE PRINCIPAL OF NATURAL JUSTICE. 4. THE LD . CIT(A) ERRED IN CONFIRMING AND REJECTING THE BOOKS OF ACCOUNTS UND ER SECTION 145 OF THE INCOME TAX AC T. 5. THE LD . CIT(A) ER RE D IN CONFIRMING AN D TREATING RS. 42,05,650 / - BEING 12.5 PERCENT OF THE TOTAL PURCHASES OF RS. 3,36,45,197 / - AS BOGUS NON - GENUINE EXPENDITURE AND THEREBY ERRED IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASS ESSEE IN VIEW OF SECTION 69C OF THE INCOME TAX ACT , 1961. 6. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF UNSECURED LOANS TAKEN OF RS. 1,50 , 00,000/ - AND THEREBY ERRED IN CONFIRMING AND TREATING THE SAME AS UNEXPLAINED CASH CREDITS IN VI EW OF SECT ION 68 O F THE INCOME TAX ACT, 1961. 7. THE LD . CI T(A) ERRED IN CONFIRMING THE DISALLOWANCE OF UNSECURED LOANS TAKEN OF RS. 20,958/ - AND THEREBY ERRED IN CONFIRMING AND TREATING THE SAME AS UNEXPLAINED CASH CREDITS IN VIEW OF SECTION 68 OF THE INC OME TAX AC T, 1961. 8. THE LD. CIT(A) ERRED IN CONFIRMIN G TH E DISALLOWANCE OF GENUINE COMMISSION/ BROKERAGE OF RS. 3 ,50,000/ - AND THEREBY ERRED IN TREATING THE SAME AS UNEXPL AINED EXPENDITURE AND ADDED THE SAME IN VIEW OF SECTION 69C OF THE INCOME TAX ACT, 1961. M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 3 9. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO W ANC E OF THE EXPENSES OF RS. 2,24,398 / - ATTRIBUTED FOR EXEMPT INC OME AS PER SECTION 14A R. W.R 8D OF THE INCOME TAX, 1961. 10. THE LD. CIT(A) ERRED IN CONFIRMING & CHARGING OF INTEREST UNDER SECTION 23 4A, 234B, 234C AND 234D O F THE INCOME TAX ACT 1961. 11. THE LD. CIT(A) ERRED IN CONFIRMING THE INITIATION OF THE PENALTY PROCEEDING UNDER SECTIO N 274 R WS 271(L)(C) OF THE INCOME TAX ACT, 1961 AS EVIDENT, THE ASSESSEE IS AGGRIEVED BY CERTAIN ADDI TIONS / D ISALLOWANC ES AS MADE BY LD. AO WHILE FRAMING THE ASSESSM E NT WHICH HAS SUBSEQUENTLY BEEN CONFIRMED BY LD. FIRST APPELLATE AUTH ORITY. 1. 3 THE LD. AUTHOR I ZED REPRESENTATIVE FOR ASSESSEE, SHRI SUCHEK ANCHALIYA , ADVANCED ARGUMENTS IN S UPPORT OF VARIOU S GROUNDS OF APPEAL. OUR ATTENTION HAS BE EN DRAWN TO THE DOCUMENTS AS PLACED IN THE PAPER - BOOK . RELIANCE HAS BEEN PLACED ON CERTAIN JUDICIAL DECISIONS , THE COPIES OF WHICH HAS BEEN P LACED BEFORE US. THE L D. DEPARTMENTAL REPRESENTATIVE (DR) , SHRI MICHA EL JE RALD, ON T HE OTHER H AND , DRAWING ATTENTION TO THE FINDING OF LOWER AUT HORITIES , PLEA D ED FOR DISMISSAL OF APPEAL. 1. 4 WE HAVE CAREFULLY CONSIDERED THE R IVAL SUBMISSIONS, PERUSED RELEVANT MATERIAL ON RECORD AND DELIBERATED ON V ARIOUS JUDIC I AL PRONOUNCEMENTS AS CITED BEFORE US. OUR ADJUDICATION T O THE SUBJECT MATTER OF AP P E AL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 2. 1 THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING RESIDENT FIRM WAS SUBJECTED TO REASSESSMENT PROCEEDINGS FOR YEAR UNDER CONSIDERA TION AND AN ASSESSMEN T WAS FRAM ED U/S 143(3) R.W.S. 147 ON 30/03/2016 W HEREIN T HE INCOME WAS ASSESSED A T RS. 257.65 LACS AFTER CERTAIN ADDIT IONS / DISALLOWANCE S AS AGAINST RETURNED IN C OME OF RS. 59.64 LACS FILED BY THE ASSESSEE ON 28/09/2011 WHIC H WAS OFFERED IN REASSESSMENT M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 4 PRO CEEDINGS A LSO. THE ORIGINAL RETURN OF INCOME WAS PROCESS E D U /S 143(1). THE ASSE SSEE IS STATED TO BE ENGAGED AS MANUFACTURER, IMPORTER, AND EXPORTER OF ROUGH AND CUT & POLI SHED DIAMONDS. 2.2 THE REASSESSMENT PROCEEDINGS WERE TRIGGERED PURSUANT TO RECEIPT OF CERTAIN I NFORMATION FROM DGIT (INVESTIGATION), MUMBAI T H AT A SEARCH & SEIZURE ACTION WAS CARRI ED OUT IN THE CASE OF BHANWARLAL JAIN GROUP ON 03/10/2013 WHEREIN IT WAS UNEARTH ED THAT THE SAID GROUP WAS OPERATING AND MANAGING 70 BENAMI CONCERNS TO PROVIDE A CCOMMODATI ON ENT RIES FOR BOGUS PURCHASES / UNSECURED LOA N S T O VARIOUS BENEFICI A RIES . IT WAS FOUND OU T THAT THE A SSESSEE WAS ONE OF S UCH BENEFICIARIES AND THEREFORE, THE CASE WAS REOPENED AS PER DUE PROCESS OF LAW BY ISSUANCE OF NOTICE U / S 148 ON 10/02/2015 . THE STA TUTORY NO TICES U/S 143(2) & 142(1) WERE ISSUED IN DUE COURSE OF TIME WHEREIN THE ASSESSEE WAS DIRECTED TO S UBSTANTIATE THE PURCHASE / LOAN TRANSACTIONS CARRIED OUT WITH THE AFORESAID SUSPICI OUS ENTITIES. THE ASSESSEE HAS MADE PURCHASES OF RS .248. 75 LACS & R S.87.69 LACS FROM M/S DAKSH DI AMOND S & M/S M O NEY DIAM RESPEC TIVELY WHEREAS IT RECEIVED UNSECURED LO ANS OF RS.50 LA CS EACH FROM T HREE ENTITIES VIZ. M/S AMIT DIAMONDS , M/S J EWEL DIAMONDS & M/S M ONEY DIAM . AL L THE AFORESAID ENTITIES WERE STATED TO BE PART O F THE B HANWAR LAL JAIN GROUP. 2.3 IN THE BACKGR O UND OF V ARIOUS F ACTS AS WELL AS DOCUMENTARY EVIDENCE S AS UNEARTHED DURING THE COURSE OF SEARCH ACTION , LD. AO SHO W - CAUSED THE ASSESSEE AND PROCEEDED TO DIS ALLOW THE PUR CHASES AS WELL AS TREA T THE AMO UNT OF UNS ECURED LOANS AS UNEXPLAINED CASH CREDIT U/S 68 O F THE ACT. M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 5 2.4 IN DE FENCE OF PURCHASE TRANSACTIONS , THE ASSESSEE CORRELATED THE PUR CHASE OF ROUGH DIAMONDS WITH THE SA LE OF CUT & POLI SHED DIAMONDS . THE VARIOUS STOCK REGISTERS A S MAINTAINED BY THE ASSESSEE W ERE PRODUCED. IT WAS SUBMITTED THAT THE ASSESS EE P URCHASED POLI SHED DIAMOND FROM M/S DAKSH DIAMONDS AND EXPORTED THE SAME AFTER EARNING GROSS PROFIT RATE OF 7.2% ON SUCH SALES. THE ASSESSEE CON TROVERTED THE STATEMENT S MADE DURING SEARCH PROCEEDIN GS ON THE SAID GROUP B Y SUBMITTING THAT THE STATEMENTS W ERE GENERAL , S ELF - CONTRADICTORY AND A UNILATERAL ACT. AS AGAINST THIS, TO SUPPORT THE PURCHASE TRANSACTIONS , THE ASSESSEE FILED DOCUMENTARY EVIDENCES IN THE SHAPE OF LEDGER EXTRACTS, ACCOUNT CONFIRMAT ION COPY, INCOME TAX RETURN AS WELL AUDITE D FINANCIAL ST ATEM ENT S OF M/S DAKSH DIAMOND . THE BA NK STATEMENTS EVIDENCING PAYMENT TO THE SUPPLIERS THROUGH BANKING CHANNELS WAS ALSO PRODUCED . THE ATTENTION WAS DRAWN TO THE FACT THE CONFIRMATION W AS GIVEN ON 01 / 08/ 2015 I. E. MUCH AFTER THE DATE OF RECORD ING OF THE STA TEME NT S AND HENCE, THE SAME WOULD AMOUNT TO RETRACTION OF THE STATEMENT . RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF KISHANCHAND CHELLARAM V/S CIT 125 ITR 713 FOR THE S UBMISSION THAT THE ASSESSEE SH OULD HAVE BEE N CONFRONTED WITH THE EVIDENCES BEING RELIED UPON BY THE DEPARTMENT . SIMI LAR DOCUMENTARY EVIDENCES WERE SUBMITTED WITH RESPECT TO PURCHASE AS WELL AS UNSECURED LOAN TRANSACTIONS CARRIED OUT WITH M/S MONE Y DIAM. T HE ASSESSE E SUBMITTED THAT SINCE IT HA D DULY DISCHARGED THE ONUS OF PROVING THE PURCHASE TRANSACTIONS AS WELL AS UNSECURED LOAN S CARRIED OUT WITH ALL THE AFORESAID PARTIES BY SUBMITTING THEIR RESPECTIVE CONFIRMATION, M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 6 BANK STATEMENTS , AUDITED FINANCIAL STAT EMENTS AND INCOME TAX RETURN ACKNOWLEDGEMENTS ETC ., THE ADDI TIONS COULD NOT BE MADE. 2.5 HOWEVER, THE AFORESAID SU BMISSIONS AS WELL AS DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE COULD NOT CONVINCE LD. A O WHO PRIMARILY RELIED UPON V ARIOUS FACTS UNEARTH ED DURING SEARCH / SURVEY PROCEEDINGS . IT WAS NOTED THAT NOT EVEN A SINGLE PIECE OF DIAMON D WAS FOUND AT THE PREMISES OF VARIOUS ENTITIES DESPITE HAVING HIGH TURNOVE R AND T HERE WAS NO A CTUAL DELIVERY OF GOO DS. HOWEVER, SINCE, NO SALE COULD TAKE PLA CE WITHO UT MAKING PURCHASE THEREFORE, IT WOULD BE FAIR TO CONCLU D E T H AT THE SAID PURCHASE - SALE TRANSACTIONS RECORDED IN T H E BOOKS WOULD NOT REFLECT TRUE PICTURE O F PROFITS E ARNED BY THE ASSESSEE ON THESE TRANS ACT IONS AND P URCHASE RATE AS MENTION ED IN THE SUPPLIER S SALE INV OICES COULD NOT BE ACCEPTED . FINA LLY , LD. AO E STIM ATED AN ADDITION OF 12.5% AGAINST SUSPICIOUS PURCHASES WHICH WORKED OUT TO BE RS.4 2 . 0 5 LACS AND AD DED THE SAME TO THE INCOME OF THE ASSESSEE. REGARDING UNSECURED LOANS , IT WAS CONCLUD ED THAT THE A SSESSEE D I D NOT ENTER INTO GENUINE LOANS TRANSACTIONS . THESE AMOUNTS W ERE NOT UTILISED BY THE ASSESSEE IN MAKING OU T - OF - BOOKS CAS H PUR CHASES B UT THE SAME WERE B ROUGHT BACK IN THE BOOKS IN THE FORM OF UNSECURED LOANS WHICH WOULD ESTABLISH THAT THE ASSESSEE S OWN MONE Y WAS INTRODUCED IN THE FORM OF UNSECURED LOANS . TH EREFORE, THE SAME WAS TO BE ADDED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED CASH CREDIT U/S 68. CONSE QUENTLY, INTEREST OF RS.20,958/ - PAID AGAINST UN S ECURED LOAN S WAS ALSO DISALLOWED . THE LD. AO FURTHER CONCLUDED THAT THE ASSESSEE MIGHT HAVE INCURRE D CERTAIN COMMISSION / BROKERAGE FOR OB TAININ G THE M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 7 ACCOMMODATION ENT RIES WHICH WAS ESTIMATED AT RS.3.50 LACS AND ADDED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED EXPENDITURE U / S 69C. 2.6 SINCE THE ASSESSEE HAD E ARNED EXEMPT DIVID END I NCOME, LD. AO PROCEEDED T O CO MPUTE DISALLOWANCE U/ S 14A. THOUGH THE ASS ESSEE SUBMITTED THAT IT HAS SUFFICIENT OWN FUNDS IN THE SHA PE OF PARTNERS CAPITAL AND INTEREST FREE LOANS TO MAKE THE INVESTMENT, HOWEVER, DISREGA RDING THE SAME, LD. AO WORKED OU T AGG REGATE DISALLOWANCE OF RS . 2.24 LACS IN TERMS OF RULE 8D(2) WHICH COMPRISED - OFF OF INTEREST DISALLOWANCE U/ R 8 D(2)(II) FOR RS.1.98 LACS AND INDIRECT EXPENS E DISALLOWANCE U/R 8D(2)(III) FOR RS. 0.26 LACS. 3. ALTH OUGH TH E ASSESSEE P REFERRED FURTHER APPEAL BEFORE LD.CIT(A) AND ASSAILED THE VARIOUS ADDITIONS / DISALLOWANCES BY WAY OF ELABORATE WRITTEN SUBMISSIONS , TH E SAME COULD NOT FIND FAVOR WIT H LD.CIT(A) WHO UPH ELD THE ACTION OF LD . AO IN MAKING VARIOUS ADDIT IONS / DISALL OWANCES. A GGRIE VED, THE ASSESSEE IS IN FURT HER AP PEAL BEFORE US . AF TER CAREFUL CONSIDERATION OF LOWER AUTHORITIES , DOCUMENTARY EVIDENCES AND VARIOUS JUDICIAL PRONOUNCEMENTS, OUR ADJUDICATION TO THE VARIOUS ISSUES WOULD BE AS GI VEN IN SUCCEEDING PARAGRAPHS VA LIDITY O F R EASSESSMENT PROCEEDINGS & REJECTION OF BOO KS 4. UPON PERUSAL OF REASONS RECORDED TO INITIATE REASSESSMENT PROCEEDINGS AS PLACED IN THE PAPER - BOOK, IT IS EVIDENT THAT THE REASSESSMENT PROCEEDINGS HAVE BEEN TRIGGERED PURSUANT TO RECEI PT OF C ERT AIN INFORM ATION FROM DGIT ( INVESTIGATION ) , MUMBAI THAT THE ASSESSEE OBTAINED BOGUS LO ANS FROM C E RTAIN ENTITIES MANAGED AND CONTROLLED BY SHRI BHANWARLAL JAIN GROUP. IN VARIOUS STATEMENTS RECORDED DURING THE SEARCH PROCEE D INGS, ADMISSION WAS MADE THAT THE E NTITIES DI D NOT CARRY M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 8 OUT ANY GENUINE BUSINESS AND MERELY ENGAGED I N PROVIDING ACCOMM ODATION ENT RIES. SINCE THE ASSESSEE WAS FOUND TO BE ONE OF THE BENEFICIARY , THE CASE WAS REOPEN ED WITHIN 4 YEARS FROM END OF RELEVANT ASSESSMENT YEAR AS PER DUE PROCE SS OF LAW BY IS SUANCE OF STATUARY NOTICES U/S 148 AS WELL U / S 143(2) & 1 42(1). THE ORIGINA L RETURN FILED BY THE ASSESSEE WAS NOT SUBJECTED TO SCRUTINY ASSESSMENT. I T IS QUITE DISCERNIBLE THAT LD. AO WAS CLINCHED WITH SPECIFIC TANGIBLE INFORMATION AS TO POSSIBLE ESCAPEMEN T OF INCOME . NOTHING MORE , IN OUR OPINION, WAS REQUIRED A T THIS STAGE TO RE OPEN THE ASSESSMENT PROCEEDINGS. THEREFOR E , W E DO NOT FIND ANY SU BS TANCE IN LEGA L GROUN DS RAISED BEFORE US. GROUND NOS. 1 TO 3 STA ND DISMISSED . GROUND NO.4 ASSAILING REJEC TION OF BO OKS WOULD STAND DISMISSED IN VIEW OF THE FACT THAT LD. AO HAS MADE SPE CIFIC ITEM - WISE ADDI TIONS WITHOUT DISTURBING THE OVERALL FINANCIAL R ESULTS SHOWN IN THE AUDITED FINANCIAL STATEMENTS . THEREFORE, GROUND NOS. 1 TO 4 STAND S DISMISSED. BOGUS PUR CHASE 5. I T IS QUITE EVIDENT THAT THE ASSESSEE HAS CORRELATED THE P URCHASE S MADE FROM SUSPICIOUS SUPPLIERS WITH THE SALE TRANSACTIONS. THERE COULD BE NO SALE WITHOUT ACTUAL PURCHASE OF GOODS KEEPING IN VIEW THE FACT THAT THE ASSESSEE TRADED THE GOODS WHICH WERE STAT ED TO BE PURCHASED FROM SUSPICIOUS DEALERS. THE ASSESSEE WAS IN POSS ESSION OF PRIMARY PURCHASE DOCUMENTS AND THE PAYMENTS TO THE SUPPLIERS WERE THROUGH BANKING CHANNELS. THE ASSESSEE S ACCOUNTS WERE DULY AUDITED WHEREIN VARIOUS STOCK REGISTER AS WELL AS QU ANTITATIVE DETAILS OF TRADED GOODS WERE FURNISHED. HOWE VER, IT IS AL SO UNCONTROVERTED FACT THAT NO T EVEN A SINGLE PIECE OF DIAMOND WAS FOUND AT THE PREMISES OF THE SUSPICIOUS M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 9 SUPPLIERS WHICH CAME TO LIGHT DU RING SEARCH / SURVEY PROCEEDINGS. THE S AID AFO RES AID FAC TS WOULD JUSTIFY THE STAND OF LD. AO IN REJECTING THE PROFITS SHOWN ON THESE PU RCHASES AND MAKE ESTIMATED ADDI TIONS TO ACCOUNT FOR UNDECLARED PROFIT ELEMENT EARNED BY THE ASSESSEE ON THESE PURCH ASE TRANSACTIONS. THEREFORE, IT WAS RIGHTLY C ONCLUDED T HAT THE SAID PURCHASE - SALE TRANSACTIONS RECORDED IN T H E BOOKS WOULD NOT REFLECT TRUE P ICTURE O F PROFITS E ARNED BY THE ASSESSEE ON THESE TRANS ACT IONS AND P URCHASE RATE AS MENTION ED IN THE SUPPLIER S SALE INVOICES COULD NOT BE ACCEPTED . SO FAR AS T HE ESTIMAT ION OF PROFIT IS CONCERNED , WE FIND THAT THE ASSESSEE H AS REF LECTED OVERALL GRO SS PROF IT (G P ) RATE OF 6.65% DURING THE YEAR AS AGAINST CORRESPONDING RATE OF 6.11% IN PRECEDING YEAR. THE LD. AR HAS STATED THAT SINCE THE PROFIT EARNED ON THESE SUSP ICIOUS TRA NSACTIONS IS 7.25% , NO FURTHER ADDITION SHOULD BE MADE . HOWE VER, IN THE BACKGROUND OF FACTS AS ENUMERATED BY US ON THIS ISSUE, WE ARE NOT INCLINED TO ACCEPT THE SAID PLEA . KE E P ING IN VIEW THE FACT THAT THE ASSESSEE WAS DEALING IN LOW MARGIN COMMO DITY LIKE DIAMOND WH ICH ATTRACT LOWER VAT RATE OF 1% AND IN VIEW OF THE O VERALL GP R ATE REFLECTED DURI NG THE YEAR, WE RESTRICT THE ESTIMATION TO 2% OF AGGREGATE PURCHASE OF RS.3 , 36 , 45 , 197 / - . THE SAME COMES TO RS.6,72,904/ - . T HE IMPUGNED ADDITIONS , THUS MAD E BY LD. A O, STAND RESTRICTED TO THAT EXTENT. GROUND NO.5 STANDS PARTLY ALLOWED. ADD ITION OF UNSECURED LOANS , INTEREST & COMMI SSION 6. GROUND NOS. 6 T O 8 ASSAILS CAPTIONED ADDITIONS. FROM THE ORDER OF LD. AO, WE FIND THAT TH E UNSECURED LOANS HAVE BEEN TRE ATED AS UN EXPLAINED C ASH CREDIT PRIMA RILY RELYING UP ON T HIRD PA RTY STATEMENT S M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 10 MADE D URING THE COURSE O F SEARCH OPERATIONS. IN TERMS OF SECTION 68, T HE ASSESSEE WAS UNDER AN OBLIGATION TO PROVE THE IDENTI TY & CREDITWORTHINESS OF THE LENDER AS WELL A S TO SHO W THE GENU INE NESS OF THE STATE D TRANSACTIONS. THE LOAN S WERE OBTAINED FROM 3 ENTITIE S VIZ. (I) M/S AMI T DIAMON DS ; (II) M/S JEWEL DIAM; (III) M/ /S MONEY DIAM. TO DISC HARGE THE ONU S, THE ASSESSEE HAD FURNISHED FOLLOWING DOCUMENTARY EVIDENCES DURING THE COUR SE OF ASSE SSMENT PROCEEDINGS: - (I) L EDGER CONFIRMATION OF ALL THE THREE ENTITIES (II) INCOME TAX RETURN ACKNOW LEDGEMENT OF ALL ENTI TIES FOR AY 2011 - 12 (III) AUDITED FINANCIAL STATEMENTS OF ALL THE ENTITIES (IV) BANK STATEMENTS OF ASSESSEE AS WELL ALL THE LENDERS E VIDENCING M OVEM ENT OF FUNDS FROM BANKING C HANNELS (V) FUNDS FLOW S TATEMENTS OF ALL THE THREE ENTITI ES (VI) LEDGER CON FIRM ATION, BANK STATEMENT & COPY OF INCOME TAX ACKNOWLEDGMENT FOR A Y 2013 - 14 I.E. T HE YEARS IN WHICH THE LOAN WAS RE PAID W E FIND THAT THE LOAN HAS NOT ONLY B EEN REPAID IN SUBSEQUENT YEARS, BUT THE ASS ESSEE HAS DULY PAID INTEREST ON TH ESE LOA NS AND DEDUCTED AP PLICABLE TAX AT SOURCE. THE LOAN HAS DULY BEEN REFLECTED IN THE AUDITED FINA NCIAL STATEMENT OF ALL THE LENDERS. ALL THE THREE ENTITIES WERE HOLDING V ALID PAN AND AS SESSED TO INCO ME TAX. THE FUNDS W ERE ROUTED THROUGH BAN KING CHANNELS WHICH WERE ULTIMATELY R EP AID IN SUBSEQUENT YEARS. THE ACCOUNT CONFIRMATION OF ALL THE LENDERS WAS PLACED ON RECORD. THE RE IS NO ALLEGATION OF IMMEDIATE CASH DEPOSIT BEFORE TRANS FER OF FUN DS TO THE ASSESSEE . NOTHING WAS BROUG H T ON RECORD TO SUGGEST ANY CASH GO T EXCH ANGE D BETWEEN THE A SSESS EE AN D THE LENDERS. IN TH E BACKGROUND O F STATED FACTS, IT COUL D VERY WELL BE SAID THAT THE ASSESSEE HAD DULY DISCHARGED THE ONUS OF PROVING THE FULFILMEN T OF PRIMARY INGREDIENTS OF SEC.68. THE ONUS, THUS SHIFTED ON REVENUE, TO CONTRO VERT THE SAME BY M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 11 B RINGING ON RECORD COGENT MATERIAL TO DISLODGE THE DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE. HOWEVE R, EXCEPT FOR THI RD PARTY STATEMENTS, THE RE VENUE IS N OT CINCHED WITH AN Y SPECIFIC EVIDENCE AGAINST THE ASSESSEE TO DECLARE THE SAID LOANS AS THE MONEY OF THE ASSESSEE BROUGH T INTO THE BOOKS BY WAY OF UNEXPLAINED CASH CREDIT. NO EFFECTIVE INVESTIGA TION IS SHOWN TO HAVE BEEN CARRIED OU T BY THE REVENU E TO DISLO DGE THE ASSE SSEE S DOCUMENTARY EVIDENCES. THE REFORE, ON THE FACTS & CIRCUMSTAN CES, THE ADDITION OF UNEXPLAINED CASH CREDIT COULD NOT BE SUSTAINED IN THE EYES OF LAW. CONSEQUENTLY , INTEREST DISALLOWANCE AS WELL AS COMMISSION / BROKERAGE ADDITION A S MADE AGA INST THE SAME WO ULD NOT SURVIVE. WE ORDER SO. THESE GROUNDS STAND ALLOWED. DISALLOWANCE U/S 14A 7. UP ON PERUS AL OF COMPUTATION OF INCOME, IT TRANSPIRE S THAT THE ASSESSEE HAS EARNED EXEMPT DIVID END INCOME OF RS.40 , 972/ - DURING THE YEAR. UPON PERUS AL OF MATE RIAL ON R ECORD, WE FIND THAT TH E ASSESSEE HAS OPENING INVESTMENT IN SHARES AS RS. 41.25 LACS WHEREAS THE CLOSI NG V ALUE IS RS.62.93 LACS I.E. TH ER E IS AN INCREMENT OF RS.21.68 LACS DURING THE YEAR. HOWEVER , THE OPENING SHARE INVESTMENT WHICH HAVE F ETCHED DIV IDEND IS RS. 5.38 LACS AND THE CLOSING VALU E OF SUCH INVESTMENT IS RS.6.11 LACS. THE AVERAGE OF TWO WORK S OU T TO BE RS.5.74 LACS. IN OUR OPINION, WHILE COMP UTING THE SAID DISALLOWANCE, ONLY THOSE INVESTMENTS WHICH HAVE FETCHED EXEMPT INCOME DURING THE YEAR ARE TO BE CONSIDERED. FURTHER , THE OVERALL DISALLOWANCE COULD NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR . THER EFORE, WE DIRECT LD. AO TO RE - COMPUTE THE SAID DISALLOWANCE CONSIDERING ONLY THOSE INVESTMENTS M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 12 WHICH HAVE FETCH ED EXEMPT INCOME DURING THE YE AR. GROUND NO.9 STANDS PARTLY ALLOWED. REST OF THE GROUN D ARE EITHER PREMATURE OR T HE SAME WOULD NOT REQUIRE ANY SPECIFIC ADJUDICATION ON OUR PART. 8. RESULTANTLY, THE ASSESSEE S APPEAL STANDS PARTLY ALLO WED IN TERMS OF OUR AB OVE ORDER. IT A NO.4435/MUM/2018 , AY 201 2 - 13 9. THE ASSESSEE HAS SIMILARLY BEEN ASSESSED U/S 143(3) R.W.S. 14 7 ON 30/03/20 16 WHEREIN IT H AS BEEN SADDLED WITH ESTIMATED ADDI TIONS @12.5% ON ACCOUNT OF ALLEGED BOGUS PURCHASES. THE SAME HAS RESULTED INTO AN ADD ITION OF R S. 33.93 LACS . THE INTEREST OF RS.13.50 LACS PAID AGAIN ST UNSECURED LOANS TO THE SUSPICIOUS LENDERS HAS ALSO BEE N DISALLOWED. THE COMMISSION INCOME HAS BEEN ESTIMATED @RS.2 LACS. T HE DISALLOWANCE U/S 14A HAS BEEN WORKED OUT AT RS. 2.56 LACS I N TERM S OF RULE 8D. THE APPELLATE ORDER IS ON SIMILAR LINES , AGAINST WHICH THE ASSESSEE I S IN FURTHER APPEAL BEFOR E US WITH SIM ILAR GROUNDS. FACTS BEING PARI - MATERIA THE SAME , OUR OBSERVATION, CONCLUSION AS WELL AS ADJUDICAT ION AS IN AY 2011 - 12 SHALL MUTATIS - MUT ANDIS APPL Y TO THIS YEAR ALSO. T HE LEGA L GROUNDS ASSAI LING REASSESSMENT PROCEEDINGS STAND S DISMISSED . THE AD DITIONS A GAINST ALLEGED BOGUS PURCHASES STAND RESTRICTED TO 2 % OF 2,71,49,985/ - WHIC H WORK S OU T TO BE RS.5,43,000/ - . THE ADDITION OF INTEREST AS WEL L AS COMMI S SION STAND DELETED . THE LD. AO IS DIRECTED TO RE - WORK DISALLOWANCE U/S 14A AFTER CONSIDERING EXEMPT INCOME YIELDING INVESTMENTS ONL Y . THE OVERALL DISALLOWANCE U/S 14A WOULD NOT EXCEED THE EXEM PT INCOME EARNED BY THE ASSESSEE. THE APPEAL STANDS P ARTLY ALLO WED . M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 13 IT A NO.4 43 6 /MUM/2018 , AY 201 3 - 1 4 10 . 1 THE ASSESSEE HAS SIMILARLY BEEN ASSESSED U/S 143(3 ) ON 30/03/2016 WHEREIN IT H AS BEEN SADDLED WITH FOLLOWING ADDITIONS / DISALLOWANCES: - (I) INTEREST DISALLO WANCE U/S 36(1)((III) FOR RS.5 .32 LACS. (II I) INTERES T DISALLOWANCE O F RS.1 2.15 L ACS AS PAID TO AGAIN ST UNSECURED LOANS TO THE SUSPICIOUS LENDERS ( III) DI SALLOWANCE U/S 14A FOR R S. 1.70 LACS I N TERMS OF RULE 8D. THE APPELLATE ORDER IS ON SIMILAR LINES , AGAINST WHICH THE ASSESSEE I S IN FURTHER APPE AL BEFORE US WITH SIMILAR G ROUNDS. FACTS BEING PARI - MATERIA THE SAME WITH RESPECT TO ISSUE NO. (II) & (I II) , OUR OBSERVATION, CONCLUSION AS WELL AS ADJUDICAT ION AS IN AY 2011 - 12 SHALL MUTATIS - MUTANDIS APPLY TO THIS YEAR ALSO. RESULTANTLY, THE INTEREST DISA LLOWANC E O F RS.12.15 LACS STAND S DELETED. T H E LD. AO IS DIRECTED TO RE - WORK DISALLOWANCE U/S 14A AFTER C ONSIDERING EXEMPT INCOME YIELDING INVESTMENTS ONLY. THE OVERAL L DISA LLOWANCE U/S 14A WOULD NOT EXCEED THE EXEMP T INCOME EARNED BY THE ASSESSEE. 10 .2 T HE INTERES T DISALLOWANCE U/S 36(1)(III) STEM FROM THE FACT THAT PARTN ER S CLOSING CAPITAL ACCOUNT HAD DE BIT BALANCE OF RS.109.46 LACS AND IT HAD ADVANCE D INTE REST FREE LOANS OF RS.7 LACS. HOWE VER, THE ASSESSEE WAS HAVING SECURED / UNSECURED LOANS AND IT IN CURRED INT ER EST EXPENDITURE OF RS.68.89 LACS DURING THE YEAR . THE LD. AO FORMED AN OPINION THAT INTEREST BEARING FUNDS WERE WITHDRAWN FRO M THE FIRM BEING CAPITAL W ITHDRAWN BY THE PARTNERS AND INTEREST FREE ADVANCES. 10 .3 THE ASSESSEE SUBMITTED THAT THE CA PITAL BALA NCES HAD CREDIT BALANCES IN ALL THE EARLIER THREE YEARS . THE FIRM DID NOT PROVIDE ANY M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 14 INTEREST ON CREDIT BALAN CES NOR CHARGED AN Y INT EREST ON DEBIT BALANCES. THE FUNDS WERE STATED TO BE WI THDRAWN FOR COMMERCIAL EXPEDIENCY. HOWEVER, NOT CONVINCED LD. AO , AP P LYIN G RATE OF 12%, COMPUTED INTEREST DISALLOWANCE OF 5.32 LACS . THE S TAND OF LD. A O, UPON CON FIRMATION BY LD. CIT(A), IS UNDER C HALL ENGE BEFORE US. 10 .4 UPON CAREFUL CONSIDERATION, I T IS QUITE EVIDENT THAT THE FIRM HAS NOT PROVIDED ANY INTEREST ON CREDIT BALANCES OF PARTNERS CAPITAL IN EARLIER YEAR S AND LIKEWISE IT HAS ALSO NOT CHARGED THE INTER EST ON DEBIT BALANCES DURING THE YEA R. TH E PARTNERS HAD CREDIT BALANCES IN ALL EARLIER THREE YEARS WHEREAS DEBIT BALANCES HAVE ARISEN ONLY DUE TO THE W ITHD RAW ALS DURING THE YEAR. THE ASSESSEE S FINANCIAL STATEMENTS FOR THE YEAR, AS PLACED ON RECORD, WOULD SHOW THAT THERE IS OVERALL REDUCTION IN SECURED AND UNSECURED LOANS DURING THE YEAR WHEREAS SUNDRY CREDITORS FOR GOODS AND EXPENSES H AVE SHOWN HEFTY IN CREASE WHI CH WOULD LEAD TO A CONCLUSION THAT THE WITHD RAW A LS WERE FUNDED OUT OF CREDIT FLOAT EN JOYED BY THE ASSESSEE. FURTHER , THE ASSESSEE HAS REFLECTED TAXABLE INCOME OF RS. 204.42 LACS WHICH COULD BE SAID TO HAVE ACCRUED EVENLY THROUGH OUT THE YEAR. THERE FORE, UNLE SS DIRECT NEXUS OF BOR ROWED FUNDS VIS - - VIS CAPITAL WITHDRAWALS WAS ESTABLISHED, NO SUCH DISAL LOWANCE U/S 36(1) (III) COULD HA VE BEEN MADE. WE FIND THAT LD. AO HAS FAILED TO BRING ON RECORD THIS NEXUS. THEREFORE , NOT CONVINCED WITH THE S TAND OF LO WER AUTHOR ITIES, WE ARE INCLINED TO DELETE THE SAID DISALLOWAN CE. WE ORDER SO . THIS GROUND STAND ALLOWED . 10 .5 THE APPEAL STANDS PARTLY ALLOWED. M/S LYPSA DIAMONDS ITA NOS.4434 - 36/MU M/2018 ASSESSMENT YEAR S :201 1 - 1 2 TO 2013 - 14 15 C O N CLUSION 1 1 . ALL THE THREE APPEALS STAND PAR TLY ALLOWED TO THE EXTENT INDICATED IN THE ORDER. O RDER PR ON OUNCED ON 22 ND OC TOBER, 2020. SD/ - SD/ - ( AMARJIT SINGH ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 22/10/2020 SR.PS , JAI SY VARGHESE / COP Y OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MU MBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI .