SANGHAVI DIAMOND CORPORATION, MUMBAI V. ITO -WARD- 23 (3)(2), MUMBAI

ITA 5769/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1343 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 05-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMA
• Assessee Lawyers: KETAN L VAJANI
• Keywords: Bogus purchase; Accommodation entries
• Section: 143(3); 201; 13; 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI VIKAS AWASTHY, JM ITA NO. 5769/MUM/2018 ( ASSESSMENT YEAR: 2014-15) M/S SANGHVI DIAMOND CORPORATION, BW-5021, 5 TH FLOOR, BHARAT DIAMOND BOURSE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-51. VS. I.T.O., WARD-23(3)(2), MUMBAI. PAN/GIR NO.AAAFS 3251 M (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI KETAN L VAJANI (AR) REVENUE BY SHRI KUMAR PADMAPANI BORA (SR.DR) DATE OF HEARING 10/12/2019 DATE OF PRONOUNCEMENT 10/12/2019 / O R D E R PER: R.C. SHARMA, A.M. THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE LD. CIT(A)-34, MUMBAI DATED 24/07/2018 FOR THE A.Y. 201 4-15 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT, THE ACT). 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED FOR TH E ADDITION UPHELD BY THE LD. CIT(A) TO THE EXTENT OF 3% OF ALLEGED BO GUS PURCHASES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF IMPORT AND ITA NO. 5769/MUM/2018 M/S SANGHVI DIAMOND CORPORATION VS ITO 2 EXPORT OF DIAMOND AND TRADING AND MANUFACTURING OF DIAMOND JEWELLERY. RETURN OF INCOME WAS FILED ON 30/09/2014 DECLARING TOTAL INCOME OF RS. 10,70,134/-. IN THIS CASE, SEARCH AND SURVEY ACTION WAS CONDUCTED IN THE CASE OF SHRI BHANWARLAL JAIN AND OTHERS ON 03/10/20 13 BY DGIT (INV.), MUMBAI. THE INVESTIGATION WING, MUMBAI COVERED CERT AIN NAME SAKE/DUMMY DIRECTORS/PARTNERS/PROPRIETORS OF VARIOU S CONCERNS THAT WERE BEING ACTUALLY MANAGED, CONTROLLED AND OPERATE D BY BHANWARLAL JAIN & FAMILY U/S 132 AND 131 OF THE ACT. DURING TH E COURSE OF SEARCH IT WAS FOUND THAT ALL NAME SAKE/DUMMY DIRECTORS/PARTNE RS/PROPRIETORS OF VARIOUS CONCERNS BELONG TO THE NATIVE PLACE OF BHAN WARLAL JAIN & FAMILY IN RAJASTHAN AND HAVE EITHER KNOW BHANWARLAL JAIN P ERSONALLY AND THROUGH THEIR FAMILIES. IN THEIR RESPECTIVE STATEME NTS RECORDED, THEY HAVE ADMITTED THAT THEY WERE MADE DIRECTORS, PARTNE RS AND PROPRIETORS OF VARIOUS CONCERNS AT THE DIRECTION OF BHANWARLAL JAIN & FAMILY WHICH WERE EVENTUALLY BEING MANAGED AND MANAGED BY THE LA TTER. SUBSEQUENTLY, THE A.O. RECEIVED INFORMATION FROM TH E OFFICE OF DGIT(INV.), MUMBAI THAT THE ASSESSEE IS A BENEFICIA RY OF ACCOMMODATION BILLS OF PURCHASES FROM CERTAIN BOGUS HAWALA DEALER S. AS PER THE INFORMATION, THE CONCERNED HAWALA DEALERS HAD NOT S OLD ANY GOODS, BUT IT HAD GIVEN ACCOMMODATION ENTRIES OF SALES TO THE ASSESSEE. THE A.O. FOUND THAT THERE WAS TOTAL PURCHASE OF RS. 6,45,05, 526/- FROM SUCH BOGUS SUPPLIERS. AFTER MAKING DETAILED ENQUIRY, THE A.O. FOUND THE ITA NO. 5769/MUM/2018 M/S SANGHVI DIAMOND CORPORATION VS ITO 3 PURCHASES TO BE BOGUS WITHOUT TAKING ANY DELIVERY O F GOODS. ACCORDINGLY, HE ESTIMATED INCOME OF 5% ON SUCH BOGUS TRANSACTION . BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF 3%, AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE ITAT. 4. IT WAS ARGUED BY THE LD AR OF THE ASSESSEE THAT THE ASSESSEE HAS FILED ALL THE DOCUMENTARY EVIDENCE TO PROVE THE GEN UINENESS OF THE PURCHASES AND SALES. HE INVITED OUR ATTENTION TO TH E DETAILS OF PURCHASES AND SALES PLACED AT PAGE 38 OF THE PAPER BOOK WHICH INDICATED THAT THE G.P. RATIO IN RESPECT OF ALLEGED BOGUS TRANSACTION WAS 7.58% AS AGAINST NORMAL G.P. OF 6.75%, ACCORDINGLY, IT WAS PLEADED T HAT NO ADDITION IS WARRANTED IN VIEW OF THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & C O. IN ITA NO. 1004 OF 2016 ORDER DATED 11/02/2019. 5. ON THE OTHER HAND, THE LD DR HAS RELIED ON THE O RDERS OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WITH R ESPECT TO ISSUE REGARDING ADDITION IN RESPECT OF BOGUS PURCHASES, T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS M/S MOHOMMAD HAJI ADAM & CO. IN ITA NO. 1004 OF 2016 VIDE ITS ORDER D ATED 11/02/2019 HAVE HELD AS UNDER: ITA NO. 5769/MUM/2018 M/S SANGHVI DIAMOND CORPORATION VS ITO 4 8. IN THE PRESENT CASE, AS NOTED ABOVE, THE ASSESS EE WAS A TRADER OF FABRICS. THE A.O. FOUND THREE ENTITIES WHO WERE IND ULGING IN BOGUS BILLING ACTIVITIES. A.O. FOUND THAT THE PURCH ASES MADE BY THE ASSESSEE FROM THESE ENTITIES WERE BOGUS. THIS BEING A FINDING OF FACT, WE HAVE PROCEEDED ON SUCH BASIS. DESPITE THIS, THE QUE STION ARISES WHETHER THE REVENUE IS CORRECT IN CONTENDING THAT THE ENTIR E PURCHASE AMOUNT SHOULD BE ADDED BY WAY OF ASSESSES ADDITIONAL INCOM E OR THE ASSESSEE IS CORRECT IN CONTENDING THAT SUCH LOGIC CANNOT BE APPLIED. THE FINDING OF THE CIT(A) AND THE TRIBUNAL WOULD SUGGEST THAT T HE DEPARTMENT HAD NOT DISPUTED THE ASSESSEE'S SALES. THERE WAS NO DIS CREPANCY BETWEEN THE PURCHASES SHOWN BY THE ASSESSEE AND THE SALES DECLARED. THAT BEING THE POSITION, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE PURCHASES CANNOT BE REJECTED WITHOUT DISTURBING THE SALES IN CASE OF A TRADER. THE TRIBUNAL, THEREFORE, CORRECTLY RESTRICTED THE ADDITIONS LIMIT ED TO THE EXTENT OF BRINGING THE G.P. RATE ON PURCHASES AT THE SAME RAT E OF OTHER GENUINE PURCHASES. THE DECISION OF THE GUJARAT HIGH COURT I N THE CASE OF N.K. INDUSTRIES LTD.. (SUPRA) CANNOT BE APPLIED WITHOUT REFERENCE TO THE FACTS. IN FACT IN PARAGRAPH 8 OF THE SAME JUDGMENT THE COURT HELD AND OBSERVED AS UNDER- SO FAR AS THE QUESTION REGARDING ADDITION OF RS.3,7 0,78,125/- AS GROSS PROFIT ON SALES OF RS.37.08 CRORES MADE BY TH E ASSESSING OFFICER DESPITE THE FACT THAT THE SAID SALES HAD AD MITTEDLY BEEN RECORDED IN THE REGULAR BOOKS DURING FINANCIAL YEAR 1997-98 IS CONCERNED, WE ARE OF THE VIEW THAT THE A SSESSEE CANNOT BE PUNISHED SINCE SALE PRICE IS ACCEPTED BY THE REVENUE. THEREFORE, EVEN IF 6% GROSS PROFIT IS TAKE N INTO ACCOUNT, THE CORRESPONDING COST PRICE IS REQUIRED T O BE DEDUCTED AND TAX CANNOT BE LEVIED ON THE SAME PRICE . WE HAVE TO REDUCE THE SELLING PRICE ACCORDINGLY AS A RESULT OF WHICH PROFIT CONIES TO 5.66%. THEREFORE, CONSIDERING 5.66% OF RS.3,70,78,125/WHICH COMES TO RS.20,98,621.88 WE TH INK IT FIT TO DIRECT THE REVENUE TO ADD RS.20,98,621.88 AS GRO SS PROFIT AND MAKE NECESSARY DEDUCTIONS ACCORDINGLY. ACCORDINGLY, THE SAID ITA NO. 5769/MUM/2018 M/S SANGHVI DIAMOND CORPORATION VS ITO 5 QUESTION IS ANSWERED PARTIALLY IN FAVOUR OF THE ASS ESSEE AND PARTIALLY IN FAVOUR OF THE REVENUE.' 7. THE COORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF SHRI RAMESHKUMAR DAULATRAJ VS ITO IN ITA NO. 4192/MUM/20 18 ORDER DATED 07/05/2019 AFTER FOLLOWING THE ABOVE DECISION OF HO NBLE BOMBAY HIGH COURT HELD AS UNDER: 9. WHEN THESE FACTS WERE CONFRONTED TO THE LEARNED SR. DR, HE REQUESTED FOR APPLICATION OF REASONABLE PROFIT RATE AND ACCORDING TO HIM THE PROFIT RATE APPLIED BY THE AO AND CONFIR MED BY CIT(A) IS QUITE REASONABLE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SMITH P.SETH (SUPRA). WE HAVE CONSIDERE D THE RIVAL CONTENTIONS ITA NO. 4192/MUM/2018 AND ARE OF THE VI EW THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF MOHAMMAD HAJI ADAM & CO. AND ORS. (SUPRA) HAS CONSIDERED THIS ISSUE AND RESPECTF ULLY FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE PROFIT RATE ONLY TO THE EXTENT OF DIFFERENTIAL PERCENTAGE AS DECLARED ON THE BOGUS PU RCHASES AND AS DECLARED ON THE REGULAR PURCHASES, HENCE, WE DIRECT THE AO A CCORDINGLY. 8. IT IS CLEAR FROM THE ABOVE DECISIONS THAT IN CAS E OF BOGUS PURCHASES WHERE SALES ARE ACCEPTED, THE ADDITION IS REQUIRED TO BE MADE ONLY TO THE EXTENT OF DIFFERENCE BETWEEN THE GP DEC LARED BY THE ASSESSEE ON NORMAL PURCHASES VIS A VIS BOGUS PURCHA SES. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE JURISDICTIONAL H IGH COURT AND THE COORDINATE BENCH OF THE ITAT, MUMBAI, WE DIRECT THE A.O. TO RESTRICT THE ADDITION TO THE EXTENT OF LOWER GP DECLARED BY THE ASSESSEE IN RESPECT OF BOGUS PURCHASES AS COMPARED TO GP ON NORMAL PURCHAS ES. THE ASSESSEE IS ALSO DIRECTED TO GIVE FULL DETAILS TO THE A.O. W ITH REGARD TO GP EARNED ON NORMAL PURCHASES AND ALSO GP EARNED ON ALLEGED B OGUS PURCHASES. ITA NO. 5769/MUM/2018 M/S SANGHVI DIAMOND CORPORATION VS ITO 6 THE A.O. IS DIRECTED TO VERIFY THE CORRECTNESS OF G .P. CALCULATION SO FILED BY THE ASSESSEE AND TO DECIDE THE SAME IN TERMS OF HONBLE BOMBAY HIGH COURT DECISION REFERRED ABOVE. WE DIRECT ACCOR DINGLY. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DECEMBER, 2019. SD/- (VIKAS AWASTHY) SD/- (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 10/12/2019 *RANJAN COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//