Ganpati Diamond Palace, Delhi V. ITO, Ward-51(3), New Delhi

ITA 5697/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2180 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 05-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Search and seizure; Accommodation entries
• Section: 142(1); 234B; 133(6); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A/SMC , NEW DELHI BEFORE SH. N.K. BILLAIYA , ACCOUNTANT M EMBER AND SH. KULDIP SINGH, JUDICIAL MEMBER ITA NO S. 5697 & 5698 /DE L/ 2017 ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 M/S. GANPATI DIAMOND PALACE, C/O - SHRI SAHIL GOEL, 18/61, PUNJABI BAGH WEST, NEW DELHI VS. INCOME TAX OFFICER, WARD - 51(3), NEW DELHI PAN : AAJFG0458M (APPELLANT) (RESPONDENT) ORDER PER KULDIP SINGH, J.M. : SINCE COMMON QUESTIONS OF LAW AND FACTS HAVE BEEN RAISED IN BOTH THE INTERCONNECTED APPEALS, THE SAME ARE BEING DISPOSED O F BY WAY OF CONSOLIDATED ORDER TO AVOID THE REPETITION OF DISCUSSION. 2. THE APPELLANT , M/S. GANPATI DIAMOND PALACE, DELHI (HEREINAFTER REFERRED TO AS THE ASSESSEE ) BY FILING THE PRESENT APPEAL S SOUGHT TO SET ASIDE THE CONSOLIDATED IMPUGNED ORDER DATED 26.05. 2017 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 17, NEW DELHI, FOR ASSESSEE BY SH. C.S. ANAND, ADV. DEPARTMENT BY SH. D.S. RAWAT, SR.DR DATE OF HEARING 28.08.2018 DATE OF PRONOUNCEMENT 31.08.2018 2 ITA NOS. 5697 & 5698/DEL/2017 ASSESSMENT YEAR S 2012 - 13 AND 2013 - 14 RESPECTIVELY ON THE GROUND S , INTER ALIA , THAT: 1. THAT THE ASSUMPTION OF JURISDICTION BY THE LEARNED A.O. TO INI TIATE PROCEEDINGS U/S 147, IS BAD ON VARIOUS FACTUAL & LEGAL GROUNDS. 2. THAT THE PROCEEDINGS INITIATED U/S 147 BY THE LEARNED A.O. MERELY ON THE BASIS OF AN INFORMATION RECEIVED, WITHOUT APPLYING HIS OWN MIND AND ALSO WITHOUT MAKING ANY VERIFICATION OF S UCH INFORMATION, ARE ILLEGAL AND THUS, DESERVES TO BE QUASHED. 3. THAT ON THE FACTS OF THE CASE AND UNDER THE LAW, THE LEARNED CIT(A) HAS ERRED IN APPROVING THE LEARNED A.O. S ACTION OF MAKING AN ADDITION OF RS.7,98,506/ - (BY APPLYING PROFIT RATE OF 25% ON THE ALLEGED BOGUS PURCHASES OF RS.31,94,022/ - MADE BY THE ASSESSEE FROM M/S. NICE DIAMONDS), WITHOUT APPRECIATING THAT THE LEARNED A.O. S ACTION OF REJECTING THE BOOKS OF ACCOUNT U/S 145(3) WAS UNTENABLE. 4. THAT ON THE FACTS OF THE CASE AND UNDER THE LAW, THE LEARNED CIT(A) HAS ERRED IN NOT PROPERLY ADJUDICATING THE GROUND OF APPEAL RELATING TO CHARGING OF INTEREST U/S 234B AS WELL AS U/ 234C. 3. BRIEFLY STATED FACTS NECESSARY FOR ADJUDIC ATION OF THE CONTROVERSY AT END ARE THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 2012 - 13 ON THE GROUND THAT A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT IN THE CASE OF SH. BHANWAR LAL JAIN GR OUP ON 03.10.2013. SH. BHANWAR LAL JAIN ADMITTED THAT HE HAS PROVIDED ACCOMMODATION ENTRIES TO VARIOUS BENEFICIARIES AND THE ASSESSEE HAS ALSO PROCURED BOGUS PURCHASES OF RS.31,94,022/ - (RS.15,79,812, DT. 06.01.2012 AND RS.16,14,210/ - , DT. 10.03.2012) . THE NOTICE UNDER SECTION 142(1) OF THE ACT , DATED 10.02.2016 ISSUED AND ASSESSEE 3 ITA NOS. 5697 & 5698/DEL/2017 WAS CALLED UPON TO PRODUCE PERSONS, WHO CAME AND SOLD GOODS IN DELHI, TO PRODUCE KARIGAR WHO HAVE MANUFACTURED JEWELLERY AND IDENTIFY THE JEWELLERY SOLD MADE FROM THE DIAMONDS PU RCHASED FROM M/S. NICE DIAMONDS LTD. TO WHICH THE ASSESSEE EXPRESSED HIS INABILITY TO PRODUCE THEM. M/S. NICE DIAMONDS LTD. HAS NOT EVEN RESPONDED TO THE NOTICE ISSUED UNDER SECTION 133(6) OF THE ACT, DECLINING THE CONTENTION RAISED BY THE ASSESSEE. TH E N T HE ASSESSING OFFICER ( AO ) PROCEEDED TO CONCLUDE THAT ON THE BASIS OF INVESTIGATION CONDUCT ED BY INVESTIGATION WING, IT IS PROVED THAT PARTIES ARE ENGAGED IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES ONLY AND HAVE BEEN ISSUING BILL WITHOUT ANY P HYSICA L STOCK AND THIS FACT HAS BEEN ADMITTED BEFORE THE INCOME TAX AUTHORITIES BY SH. BHANWAR LAL JAIN . THE ASSESSEE HAS NOT SHOWN THE EXACT SALE OF DIAMOND JEWELLERY ALLEGED TO HAVE BEEN PURCHASED FROM M/S. NICE DIAMOND LTD. CONSEQUENTLY , THE AO ESTIMATED THE G ROSS P ROFIT (GP) ON BOGUS PURCHASES MADE FROM M/S. NICE DIAMONDS LTD. @ 25%, AS AGAINST THE DECLARED GP OF 18.82% BY THE ASSESSEE, OF PURCHASE OF RS.31,94,022/ - , I.E., RS.7,98,506/ - AND MADE ADDITION THERETO TO THE TOTAL INCOME OF THE ASSESSEE FOR ASSESSM ENT YEAR 2012 - 13. 3.1 SIMILARLY, FOR ASSESSMENT YEAR 2013 - 14 THE AO ESTIMATED THE GP ON BOGUS PURCHASES MADE BY THE ASSESSEE FROM M/S. NICE DIAMOND LTD. @ 25% OF THE BILL OF RS.5,13,400/ - , I.E., RS.1,28,350/ - AS AGAINST 21.88% GP DECLARED BY THE ASSESSEE. 4 ITA NOS. 5697 & 5698/DEL/2017 3.2 THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A) BY WAY OF FILING THE APPEALS WHO HAVE CONFIRMED THE ADDITION BY DISMISSING THE SAME . GROUND N O. 1 OF ITA NO. 5697/DEL/2017 ( FOR AY: 2012 - 13 ) 4. GROUND NO.1 IS GENERAL IN NATURE, HENCE NEEDS NO SEPARATE ADJUDICATION. GROUND NO. 2 OF ITA NO.5697/DEL/2017 (FOR AY: 2012 - 13) 5. THIS GROUND HAS NOT BEEN PRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WHO HAS PREFER RED TO ARGUE THE CASE ON MERITS. GROUND NO. 3 OF ITA NO. 56 97/DEL/2017 ( FOR AY: 2012 - 13) AND GROUND NO. 1 OF ITA N O. 5698/DEL/2017 ( FOR AY: 2013 - 14 ) . 6. UNDISPUTEDLY, THE ASSESSEE HAS SHOWN GP RATE @ 18.18% AND 21.88% FOR ASSESSMENT YEAR S 2012 - 13 & 2013 - 14 RESPECTIVELY. IT IS ALSO NOT IN DISPUTE THAT THE DIAMONDS HAVE BEEN PURCHASED BY THE ASSESSEE FOR MANUFACTURING THE JEWELERY BUT HAS OBTAINED BOGUS BILLS TO AVOID THE PAYMENT OF VAT FROM SOME OTHER BOGUS BILL ENTRY PROVIDERS. IT IS ALSO NOT IN DISPUTE THAT THE AO HAS AP PLIED UNIFORM GP RATE OF 25% ON THE SAID BOGUS PURCHASES OF RS.31,94,022/ - FOR ASSESSMENT YEAR 2012 - 13 AND ON BOGUS PURCHASE OF RS.5,13,400/ - FOR ASSESSMENT YEAR 2013 - 14. 5 ITA NOS. 5697 & 5698/DEL/2017 7. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACTS AND CIRCUMSTA NCES , THE LEARNED A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE BY RELYING UPON THE DECISION RENDERED BY THE COORDINATE BENCH OF TRIBUNAL IN ITA NO. 4760/MUM/2017 (AY: 2009 - 10 ) ( IN THE CASE OF M/S. NATIK GEMS VS. INCOME TAX OFFICER ) CONTENTED THAT AT THE MOST, GP RATE IN THE CA SE OF JEWELLERY BUSINESS MAY BE ENHANCED BY 3% OF THE SAID BOGUS PURCHASES. 8. FOR READY PERUSAL, OPERATIVE PART OF THE ORDER PASSED BY THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S. NAITIK GEMS (SUPRA), IS EXTRACTED BELOW: 3.5 THERE IS MERIT IN T HE ARGUMENTS OF THE AO AS GIVEN ABOVE AND FOLLOWING SUCH ARGUMENTS IT IS HELD THAT THE A.O. WAS RIGHT IN ESTIMATING ADDITIONAL PROFIT ON UNPROVED/NON - GENUINE PURCHASES. THE A.O. HAS FAIRLY CONCEDED IN PARA 9.1 OF HIS ORDER THAT THE APPELLANT HAD INCURRED E XPENDITURE ON SUCH PURCHASES, BUT SUCH EXPENDITURES REMAIN UNEXPLAINED. THUS, SOME DISALLOWANCE OUT OF THE DISPUTED PURCHASES WILL HAVE TO BE MADE, BUT THE QUESTION REMAINS WHETHER DISALLOWANCE AT THE RATE OF 6% OF THE UNPROVED PURCHASES IS FAIR OR NOT. TH E MAIN REASON FOR ADOPTING SIX PERCENT AS FAIR ADDITIONAL PROFIT WAS BECAUSE THE AO THOUGHT THAT INSTRUCTION NO. 2 OF 2008 DATED 22.02.2008 WILL BE APPLICABLE TO THIS CASE. HOWEVER, FROM A PLAIN READING OF INSTRUCTION NO. 2 OF 2008 IT IS SEEN THAT THIS INS TRUCTION WAS MEANT TO BE APPLICABLE FOR ASSESSMENTS MADE DURING FY 2008 - 09. CLEARLY, THE ASSESSMENT OF THE APPELLANT HAS NOT BEEN MADE DURING FY 2008 - 09. FURTHER, THE CLAUSE E OF THE SAID INSTRUCTION STATES 'THE RATE OF PROFIT AS A PERCENTAGE OF TURNOVER W OULD BE REVIEWED ANNUALLY ON THE BASIS REVENUE GENERATION AND RESULTS OF SCRUTINY ASSESSMENT, SEARCHES AND SURVEYS MADE DURING THE YEAR'. THUS, THE BENIGN ASSESSMENT PROCEDURE (BAP) OR THE PERCENTAGE MENTIONED IN THE INSTRUCTION NO. 2 OF 2008 CANNOT BE APP LIED ACROSS THE BOARD IN ALL CASES OF ASSESSEES ENGAGED IN DIAMOND BUSINESS. IN DIAMOND TRADE THE RATE OF VAT IS STATED TO BE 1% AND IN SOME PLACES LIKE SURAT THE SAME IS STATED TO BE FULLY EXEMPT. THE TASK FORCE GROUP FOR. DIAMOND INDUSTRY CONSTITUTED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, AFTER CONSIDERING THE BAP SCHEME, RECOMMENDED PRESUMPTIVE TAX FOR NET PROFIT CALCULATED 2% OF M/S.NAITIK GEMS TRADING ACTIVITY AND 3% FOR MANUFACTURING ACTIVITY OR @ 2.5% ACROSS THE BOARD. IT IS ALSO STATED THAT THE OPERATIVE PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP WING IS 6 ITA NOS. 5697 & 5698/DEL/2017 CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%. IT IS ALSO BROUGHT TO MY NOTICE THAT IN SIMILAR CASES OF DIAMOND BUSINESS, SOME CIT(A)'S HAVE TAKEN A VIEW THAT 3% OF THE DISPUTED PURCHASES SHOULD BE CONSIDERED AS FAIR ADDITIONAL PROFIT. IN VIEW OF THE ABOVE AND ALSO SINCE THE PROFIT MARGIN IS LESSER IN THIS SECTOR, ADOPTING 6% AS THE ADDITIONAL PROFIT BY THE AO, IS NOT BASED ON CORRECT OR FOOTING. CON SIDERING THE FACT THAT THE PROFIT MARGIN IN THIS SECTOR IS AROUND 2 TO 3 PERCENT AND THE TAXES SAVED IS ALSO AROUND 1%, I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS ABSTAINED TO THE EXTENT OF 3% OF THE DISPUTED PURCHASES, THE SAME WILL MEET THE E NDS OF JUSTICE. THUS, AFTER CONSIDERING THE TOTALITY OF FACTS THE ADDITION MADE BY THE AO IS RESTRICTED TO 3% OF THE DISPUTED PURCHASES. THUS 3% OF RS. 6,92,82,349/ - WHICH IS RS. 20,78,470/ - IS TAKEN AS PROFIT OF THE APPELLANT ON PURCHASES THAT ARE NOT FUL LY AND PROPERLY EXPLAINED. ADDITION OF RS. 20,78,470/ - IS ACCORDINGLY CONFIRMED OUT OF AN ADDITION OF RS.41,56,941/ - AND THE BALANCE IS DELETED. GROUNDS OF APPEAL NO. 1 IS THEREFORE PARTLY ALLOWED.' 9. WHEN WE EXAMINE THE ASSESSMEN T ORDER, I T HAS COME ON RECORD THAT THE AO HAS APPLIED 25% UNIFORM GP ON THE SAID BOGUS PURCHASES OF RS.31,94,022/ - FOR ASSESSMENT YEAR 2012 - 13 AND RS.5,13,400/ - FOR ASSESSMENT YEAR 2013 - 14 , I GNORING THE FACT THAT ON THE SAID BOGUS PURCHASES THE ASSESSEE HAS ALREADY DECLARED THE GP RATE AT 18.82% AND 21.88% FOR ASSESSMENT YEAR S 2012 - 13 AND 2013 - 14 RESPECTIVELY AND , AT THE MOST , DIFFERENCE BETWEEN 18.82% AND 21.88% SHOULD HAVE BEEN ESTIMATED AND ADDED TO ASSESSEE S INCOME. 10. HOWEVER, KEEPING IN VIEW THE FACT THAT NO DISCREPANCIES HAVE BEEN FOUND IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE IN THE DUE COURSE OF BUSINESS; THAT AO HAS NOT DISPUTED THE PURCHASE OF DIAMONDS BUT ONLY DISPUTE D THAT THE BOGUS BILLS WERE PROCURED TO AVOID THE PAYMENT OF VAT AND THE FACT THAT PROFIT MARG IN IN THE DIAMOND BUSINESS IS AROUND 2 TO 3% AND AS HAS BEEN HELD 7 ITA NOS. 5697 & 5698/DEL/2017 BY THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S. NAITIK GEMS (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT IN ADDITION TO THE GROSS PROFIT ALREADY DECLARED BY THE ASSESSEE IN ASSESSMENT YEAR 2012 - 13 AND 2013 - 14 FURTHER ADDITION OF 3% IN THE GP RATE ON THE BOGUS PURCHASES IS ORDERED TO BE MADE. THE AO IS DIRECTED TO RESTRICT THE ADDITION OF GP T O 3% OF THE DISPUTED PURCHASES OVER AND ABOVE THE GP RATE ALREADY DECLARED BY THE ASSESSEE. GROUND NO. 4 OF ITA NO.5697/DEL/2017 (FOR AY: 2012 - 13) 11. GROUND NO. 4 IS CONSEQUENTIAL, HENCE NEEDS NO SPECIFIC ADJUDICATION. 1 2 . IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE PRESENT APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER IS PRONOUN CED IN THE OPEN COURT ON 3 1 S T AUGUST , 201 8 . S D / - S D / - ( N.K. BILLAIYA ) ( KULDIP SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 1 S T AUGUST , 201 8 . RK / - COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI