SPARK DIAMONDS, MUMBAI V. ITO 19 (3)(4), MUMBAI

ITA 4931/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4849 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 23-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: BHARAT P SHAH
• Keywords: Bogus purchase; Search and seizure; Opportunity of being heard; Accommodation entries; Set aside

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI PAWAN SINGH (JM) I.T.A. NO. 4931 /MUM/ 201 8 (ASSESSMENT YEAR 20 09 - 10 ) M/S. SPARK DIAMONDS DW - 1340, BHARAT DIAMONDS BOURSE, BANDRA KURLA COMPLEX, BANDRA EAST MUMB AI - 400 052. PAN : AAKFS6979A V S . ITO 19(3)(4) MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI BHARAT P. SHAH DEPARTMENT BY SHRI CHAITANYA ANJARIA DATE OF HEARING 1 . 8 . 201 9 DATE OF PRONOUNCEMENT 8 . 8 . 201 9 O R D E R PER SHAMIM YA HYA (AM) : - THIS IS AN APPEAL BY THE ASSESSEE WHEREIN THE ASSESSEE IS AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING 3% DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES OF RS. 22,61,986/ - , VIDE ORDER DATED 1.5.2018 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. B RIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT D URING THE COURSE OF SEARCH AND SEIZURE ACTION ON SHRI RAJENDRA JAIN, IT CAME TO LIGHT THAT THE VARIOUS CONCERNS CONTROLLED BY THEM ARE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES . FURTHER, DURING THE SEARCH ACTION, VARIOUS EVIDENCES AND OTHER FINDINGS WERE COLLECTED WHICH PROVED THAT THE ABOVE PERSONS THROUGH CONCERNS CONTROLLED BY HIM IS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES IN THE NATURE OF BOGUS UNSECURED LOANS, BOGUS SALE S/PURCHASES, ETC. STATEMENTS OF VARIOUS KEY PERSONS WERE ALSO RECORDED ON OATH WHEREIN THEY ADMITTED THAT ALL THE CONCERNS CONTROLLED AND MANAGED BY THEM ARE NOT DOING ANY REAL M/S. SPARK DIAMONDS 2 TRADING IN DIAMONDS BUT ONLY CARRYING OUT PAPER TRANSACTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS NOT ABLE TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM M/S AVI EXPORTS OF RS 22,61, 986 / - WHICH IS CONTROLLED BY SHRI RAJENDRA JAIN. THE AO HELD THAT THE SAID PURCHASES HAVE NOT BEEN MADE FROM THE SAID PART Y BUT HAVE BEEN MADE FROM UNKNOWN UNREGISTERED PARTIES. THE AO DID NOT DOUBT THAT THE SAID PURCHASES HAVE NOT BEEN MADE BUT DOUBTED WHETHER THE PURCHASES WERE MADE FROM THE SAID PARTY AS CLAIMED BY THE ASSESSEE. THE AO COMPUTED THE UNDISCLOSED PROFIT FROM THESE PURCHASES AMOUNTING TO RS 22,61, 9867 - AT RS 1,80,9597 - BY APPLYING GP RATE OF 8% . 3. UPON ASSESSEES APPEAL LEARNED CIT(A) HELD AS UNDER : - NOW THE ISSUE TO BE ADJUDICATED IS WHAT IS THE REASONABLE PROFIT PERCENTAGE TO BE ADOPTED FOR COMPUTING THE PROFITS ARISING FROM THE ALLEGED HAWALA PURCHASES. IT IS PERTINENT TO MENTION THAT THE CBDT THROUGH INSTRUCTION NO. 2/08 DATED 22/02/2008 HAS REVISED THE RATE OF PROFIT MARGIN FROM 8% TO 6% IN RESPECT OF GEMS AND JEWELLERY BUSINESS. THUS, IT CAN BE SEEN T HAT THE INCOME TAX DEPARTMENT CONSIDERS 6% OF PROFIT MARGIN TO BE REASONABLE FOR THE BUSINESS OF GEMS & JEWELLERY. IT IS OBSERVED THAT THE ASSESSEE HAS SHOWN A G.P. OF 5.88% WHICH IS REASONABLE. HOWEVER, IT IS OBSERVED THAT THE ASSESSEE VIDE LETTER DATED 0 6.12.2016 HAD SORT OF AGREED FOR COMPUTATION OF ADDITIONAL PROFITS BY APPLYING A RATE OF 2% ON THE AMOUNT OF ALLEGED BOGUS/HAWALA PURCHASES. THIS IS OBSERVED FROM PARA 12 OF THE ASSESSMENT ORDER, WHEREIN THE AO MENTIONS THAT THE ASSESSEE HAS OFFERED FURTHE R ADDITION OF UNACCOUNTED PROFITS ON THE ALLEGED BOGUS/HAWALA PURCHASES @3% TO BUY PEACE OF MIND. IN VIEW OF THIS FACTUAL POSITION, THE ADDITION M ADE BY THE AO OF RS. 1,27, 363/ - @3% OF THE AMOUNT OF THE ALLEGED BOGUS/HAWAL A PURCHASES IS CONFIRMED. ACCORDI N G L Y, GROUND NO. 1 (A TO E) OF THE APPEAL IS PARTLY ALLOWED. 4. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE CITED FEW TRIBUNAL DECISION S , WHEREIN IN SIM ILAR CIRCUMSTANCES 100% DEDUCTION WAS ALLOWED. 5. U P ON CAREFUL CONSIDERATION WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASE. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSE SSEE TO PRODUCE THE SUPPLIERS. W E FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE M/S. SPARK DIAMONDS 3 NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE DONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF N IKUNJ E XIMP E NTERPRISES (IN WRIT PETITION NO 2860, ORDER DT . 18.6.20 14). IN THIS CASE THE HON'BLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOG US WHEN SALES ARE NOT DOUBTED. HOWEVER IN THAT CASE ALL THE SUPPLIES WERE TO GOVERNMENT AGENCY. IN THE PRESENT CASE THE FACTS OF THE CASE INDICATE THAT ASSESSEE HAS MADE PURCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GIVES THE ASSE SSEE SAVINGS ON ACCOUNT OF NON PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIA TED PURCHASES BY THE ASSESSEE, WE FIND THAT AS HELD BY HON'BLE HIGH C OURT OF BOMBAY IN ITS RECENT JUDGEMENT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VERSUS M HAJI ADAM & CO (ITA NO. 1004 OF 2016 DATED 11/2/2019 IN PARAGRAPH 8 THERE OFF) THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RATE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURCHASES. 6. WE RESPECTFULLY FOLLOWING T HE AFORESAID JUDGEMENT OF THE HON'BLE HIGH COURT SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO RESTRICT THE ADDITION AS REGARDS THE BOGUS PURCHASES BY BRINGING THE GROSS PROFIT RATE ON SUCH BOGUS PURCHASES AT THE SAME RATE AS THAT OF THE OTHER GENUINE PURCHASES. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD . 7. IN THE RESULT ASSESSEE'S APPEAL IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 8 . 8 . 201 9 . SD/ - SD/ - (PAWAN SINGH) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 8 / 8 / 20 1 9 COPY OF THE ORDER FORWARDED TO : M/S. SPARK DIAMONDS 4 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMB AI