MR.ANIL M. KADAKIA, MUMBAI V. ACIT CIRCLE-17(1), MUMBAI

ITA 5854/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3580 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 11-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Bogus purchase; Transfer pricing; Search and seizure; Cost of acquisition; Accommodation entries; Retraction
• Section: 69C; 143(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER ITA NO. 5854 /MUM/201 8 (A.Y: 20 13 - 14) SHRI ANIL M. KADAKIA 404, SHARADA CHAMBERS 33, NEW MARINE LINES MUMBAI 400 020 PAN: AADPK7331F V. A.C.I.T., CIRCLE 17(1) ROOM NO. 117, 1 ST FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. DINKLE HARIA DEPARTMENT BY : SHRI RAM TIWARI DATE OF HEARING : 19.09.2019 DATE OF PRONOUNCEMENT : 29 . 10.2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) 55 , MUMBAI [HEREINAFT ER IN SHORT LD.CIT(A)] DATED 13.08.2018 FOR THE A.Y. 2013 - 14 IN SUSTAINING THE ADDITION MADE TOWARDS BOGUS PURCHASES. 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE B USINESS OF TRADING IN CUT AND POLISH DIAMONDS FILED RETURN 2 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA OF INCOME ON 01.08.2013 FOR THE A.Y. 2013 - 14 DECLARING INCOME OF . 28,81,375 / - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. THE ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT(INV.), MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEALERS. THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCH ASES MADE FROM VARIOUS PARTIES WHICH WERE REFERRED TO IN THE ASSESSMENT ORDER. THE ASSESSEE PRODUCED COPIES OF BILLS, BANK STATEMENTS, COPIES OF VAT CHALLANS, LEDGER COPIES AND SUBMITTED THAT THE PURCHASES MADE ARE GENUINE. NOT CONVINCED WITH THE SUBMISS IONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE PURCHASES I N THE GRAY MARKET. IT IS THE FINDING OF THE ASSESSING OFFICER SINCE THE PURCHASES MADE BY THE ASSESSEE AND CLAIMED AS EXPENSES IN HIS PROFIT AND LOSS ACCOUNT ARE NOT GENUINE, THE PURCHASES TO THAT EXTENT REMAINED UNVERIFIABLE . HE ALSO OBSERVED THAT THE D EALERS FROM WHOM THE ASSESSEE MADE PURCHASES STATED THAT THEY HAVE ISSUED ONLY ACCOMMODATION BILLS. THEREFORE, HE TREATED PURCHASES OF .9 ,9 8 ,1 06/ - AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) SUSTAINED THE ADDITION MAD E BY THE ASSESSING OFFICER. 3 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA 3. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES. 4. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THIS COORDINATE BENCH IN THE CASE OF ACIT V. M/S. CHORON DIAMOND (I) PVT. LTD IN ITA.NOS. 4449, 6798 & 6800 /MUM/2016 DATED 30.10.2017 WHEREIN THE COORDINATE BENCH TAK ING NOTE OF THE CBDT CIRCULAR, REPORT OF THE TASK GROUP SUBMITTED TO DEPARTMENT OF COMMERCE ETC. , HELD AS UNDER: - 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE THE ASSESSMENTS WERE REOPENED BASED ON THE INFORMATION FROM THE DGIT(INVESTIGATIONS), MUMBAI THAT ASSESSEE IS A BENEFICIARY FROM THE ENTITIES OPERATED BY SHRI RAJENDRA JAIN, SHRI SURENDRA JAIN, SHRI BHANWARLAL JAIN AND SHRI DHARMICHAND JAIN WHEREIN THE SEA RCH TOOK PLACE AND IT WAS FOUND THAT SHRI RAJENDRA JAIN, SHRI SURENDRA JAIN, SHRI BHANWARLAL JAIN AND SHRI DHARMICHAND JAIN WERE PROVIDING ONLY ACCOMMODATION ENTRIES AND THERE WERE NO ACTUAL SALE TRANSACTIONS AND THE ASSESSEE COULD NOT PROVE THE MOVEMENT O F GOODS FROM THE SUPPLIERS TO THE ASSESSEE. IN THE ABSENCE OF DELIVERY CHALLANS, PROPER STOCK RECORDS AND BASED ON THE DEPOSITIONS OF THE SUPPLIERS THAT THEY HAVE PROVIDED ONLY ACCOMMODATION BILLS, THE ASSESSING OFFICER HAS RIGHTLY CONCLUDED THAT THE ASSE SSEE HAS OBTAINED ONLY BOGUS BILLS AND ASSESSEE MIGHT HAVE PURCHASED GOODS IN GRAY MARKET. THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT MARGIN ON SUCH PURCHASES AT 12.5% BY REDUCING GROSS PROFIT RATE ALREADY SHOWN BY THE ASSESSEE FOR THE ASSESSMENT YE ARS 2008 - 09, 2010 - 11, 2011 - 12 AND 2013 - 14 AND FOR THE ASSESSMENT YEAR 2007 - 08 THE ENTIRE PURCHASES WERE TREATED AS NON - GENUINE. THE LD.CIT(A) TAKING NOTE OF THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE AVERMENTS OF THE ASSESSING OFFICER, THE CBDT IN STRUCTIONS AND VARIOUS CASE LAWS ESTIMATED THE PROFIT ELEMENT FROM THESE PURCHASES AT 4% FOR THE ASSESSMENT YEAR 2007 - 08 AND 3% FOR THE ASSESSMENT YEARS 2008 - 09, 2010 - 11, 2011 - 12 AND 2013 - 14. THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08 OBSERVED AS UNDER : - 4 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE LD.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE LD.AR. AS SEEN FROM THE FACTS OF THE CASE THE AO HAS REOPENED THE ASSESSMENT BASED ON THE INFORMATION RECEIVED FROM THE DIT(LNV.), MUMBAI ON THE BASIS OF SEARCH AND SEIZURE ACTION CONDUCTED BY THE INVESTIGATION WING DURING THE COURSE OF WHICH RAJENDRA JAIN HAVE GIVEN CATEGORICAL STATEMENTS CLEARLY STATING THE MODUS OPERANDI FOLLOWED BY THEM IN PROVIDING THE ACCOMM ODATION BILLS. THEY HAVE ALSO ADMITTED UNEQUIVOCALLY BEFORE THE INVESTIGATION WING THAT THEY WERE NOT INVOLVED IN ANY REAL TRADING OF DIAMONDS EXCEPT GIVING BOGUS BILLS TO THOSE WHO NEED THEM FOR CERTAIN COMMISSION. HAVING OBSERVED THAT THOSE PARTIES IN QU ESTION ARE NON - EXISTANT SELLERS AND THEY HAVE NOT MADE ANY SALES EXCEPT THE BOGUS INVOICES ISSUED IN THEIR NAME, THE AO HAS BROUGHT TO - LAX THE ENTIRE BOGUS PURCHASES STANDING IN THE NAMES OF THE SO - CALLED SELLERS U/S 69C OF THE ACT AS THE EXPLANATION GIVEN BY THE APPELLANT WAS NOT SATISFACTORY. THE ARGUMENT OF THE APPELLANT WAS THAT UNLESS THE AO PROVES POSITIVELY THAT THE MATERIAL WAS NOT DELIVERED TO THE ASSESSEE AND THE PAYMENT MADE THROUGH THE BANK CHANNELS HAVE BEEN BOGUS OR THE AMOUNTS PAID IN THE NAM ES OF THE SUPPLIERS HAVE COME BACK TO THE PURCHASER - ASSESSEE, THE AO CANNOT MAKE ANY ADDITION U/S.69C. FURTHER, AS THE AO HAS NOT DOUBTED THE SALES DISCLOSED BY THE APPELLANT HE HAS TO ALLOW THE PURCHASES SINCE THERE CANNOT BE ANY SALES WITHOUT THE PURCHAS E OF THE MATERIAL. THE ONLY POSSIBILITY IS THAT THE APPELLANT MIGHT HAVE INFLATED ITS PURCHASES BY INCORPORATING THE INVOICES IN THE NAMES OF THE BOGUS SUPPLIERS. THE PRESUMPTION IS THAT THE MATERIAL MIGHT HAVE BEEN PURCHASED FROM GREY MARKET AT A LOWER RA TE AND MADE GOOD THE ENTRIES WITH BOGUS BILLS TO REDUCE THE PROFITS. UNDER SIMILAR CIRCUMSTANCES THE HONBLE HIGH COURT OF GUJRAT IN THE CASE OF SIMIT P SETH, 2013 (356 ITR 451) HAD AN OCCASION TO DELIVER ITS JUDGMENT BY CONFIRMING THE DECISION OF THE ITAT WHICH HAS ESTIMATED THE DISALLOWANCE AT 12.5% OF THE DISPUTED BOGUS PURCHASES TO MEET THE ENDS OF JUSTICE. THE HEAD - NOTE OF THE DECISION IS REPRODUCED AS UNDER - 'SECTION 145 OF THE INCOME - TAX ACT, 1961 - METHOD OF ACCOUNTING - ESTIMATION OF PROFITS [BOGUS PURCHASES] - ASSESSMENT YEAR 2006 - 07 - ASSESSEE WAS ENGAGED IN BUSINESS OF TRADING IN STEEL ON WHOLESALE BASIS - ASSESSING OFFICER HAVING FOUND THAT SOME OF ALLEGED SUPPLIERS OF STEEL TO ASSESSEE HAD NOT SUPPLIED STEEL TO ASSESSEE BUT HAD ONLY PROVIDED SA LE BILLS, HELD THAT PURCHASES MADE FROM SAID PARTIES WERE BOGUS - HE, ACCORDINGLY, ADDED ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF ASSESSEE - COMMISSIONER (APPEALS) HAVING FOUND THAT ASSESSEE HAD INDEED MADE PURCHASES, THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET, SUSTAINED ADDITION TO EXTENT OF 30 PER CENT OF 5 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA PURCHASE COST AS PROBABLE PROFIT OF ASSESSEE - TRIBUNAL HOWEVER, SUSTAINED ADDITION TO EXTENT OF 12.5 PER CENT - WHETHER SINCE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTI ES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCOUNT, ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO ASSESSEE'S INCOME - HELD, YES - WHETHER HENCE, ORDER OF TRIBUNAL NEEDED NO INTERFERENCE - HELD, YES [PARAS 6, 7 & 9] [IN FAVOUR OF ASSESSEE] '. (EMPHASIS SUPPLIED). 5.2.1. WITH REGARD TO THE INFORMATION RECEIVED FROM DIT(LNV.), MUMBAI THE SUMMARY OF THE COMMUNICATION WAS ALREADY PASSED ON TO THE APPELLANT WHILE COMMUNICATING REASONS FOR REOPENING AND SUBSEQUENT PERIODS DURING ASSESSMENT PROCEED INGS. EVEN THOUGH RAJENDRA JAIN GROUP HAS NOT MENTIONED THE NAME OF THE APPELLANT IN THEIR STATEMENTS, THEY HAVE GIVEN THE NAMES OF THE CONCERNS IN WHOSE NAMES THE INVOICES WERE GIVEN TO THE APPELLANT AND THOSE BOGUS NAMES ARE INDEED APPEARING IN THE BOOKS OF THE APPELLANT. THEREFORE, THE LINK IS ESTABLISHED. EVEN THOUGH THE AG COULD NOT PROVE SUBSTANTIVELY THAT THE AMOUNTS GIVEN TO THE SELLERS IN CHEQUE FORM HAVE COME BACK TO THE APPELLANT, THE ACTIVITIES OF ACCOMMODATION ENTRIES IN THE TRADING COMMUNITY I S NOT UNHEARD OF. FURTHER, THE DISTURBING FACTS REVEALED BY RAJENDRA JAIN GROUP ITSELF DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS CONDUCTED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT GIVING DETAILED MODUS OPERANDI AND CONFESSIONS, CANN OT BE LOST SIGHT OF. THE SUBSEQUENT RETRACTION IS OF NO RELEVANCE AS THE THREAT, DURESS AND COERCION UNDER WHICH THE STATEMENTS WERE ALLEGED TO HAVE BEEN RECORDED WAS NOT ESTABLISHED BY THEM. EVEN THOUGH THERE ARE CATENA OF CASES RELIED ON BY THE APPELLANT , INCLUDING SOME OF THEM DELIVERED BY THE JURISDICTIONAL ITAT, WHICH HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, THEY ARE NOT UNIFORM IN ALL THE CASES AS THEY WERE DECIDED AS PER THE FACTS AND CIRCUMSTANCES OF THAT PARTICULAR CASE BEFORE THEM. I AM O F THE OPINION THAT THE THEORY LAID DOWN BY THE HON'BLE GUJRAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUPRA.) SHOULD BE APPLIED IN THE INSTANT CASE. THE DECISION RENDERED BY GUJARAT HIGH COURT IN THE ABOVE CASE IS ON THE BASIS OF VAT BENEFIT THE APPELLANT MIGHT HAVE SAVED BY TAKING ACCOMMODATION ENTRIES. HOWEVER, IN THE DIAMOND TRADE THE BENEFIT OF VAT SAVING IS NOT THAT HIGH. IN THE CASE OF DIAMOND BUSINESS, THE VAT CHARGES ARE ONLY 1% AND THE CUSTOMS DUTY ON IMPORT IS ABOUT 2%. KEEPING IN VIEW THE ABOVE T AX RATES THE INTENTION OF THE ASSESSEE TO SAVE FROM THE TRANSACTION SHOULD BE VIEWED ONLY TO THE EXTENT OF SAVING FROM THE ABOVE TAXES BY INDULGING IN UNETHICAL PRACTICE OF TAKING ACCOMMODATION ENTRIES. IT IS ALSO PERTINENT TO MENTION HERE THE RELEVANCE OF THE BOARD'S INSTRUCTION NO - 2/2008 DATED FEBRUARY 22, 2008 WHEREIN IT HAS LAID DOWN A GUIDELINE IN THE FORM OF BENIGN ASSESSMENT PROCEDURE FOR ASSESSEE'S ENGAGED IN DIAMOND MANUFACTURING AND/OR TRADIN G, WHEREIN IT HAS STATED THAT: 6 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA A........ B. IF AN ASSESSEE HAS SHOWN A SUM EQUAL TO OR HIGHER THAN 6% OF ITS TOTAL TURNOVER FROM SUCH BUSINESS AS HIS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION FOR A PARTICULAR ASSESSMENT YEAR, THE ASSESSING OFFICER SHALL EXCEPT HE'S THE TRADING RESU LTS. C 5.2.2 KEEPING IN VIEW THE ABOVE INSTRUCTION OF THE BOARD, ON THE ONE HAND AND THE FORMULA LAID DOWN IN THE CASE OF SUMI SETH BY GUJARAT HIGH COURT AND THE PROFITS DISCLOSED IN THIS LINE OF BUSINESS, TO MEET THE ENDS OF JUSTICE, I FIND IT REASONABL E IF 4% OF THE AMOUNT OF SO - CALLED BOGUS PURCHASES ARE BROUGHT TO TAX. I ACCORDINGLY DIRECT THE ASSESSING OFFICER TO CHARGE 4% OF THE BOGUS PURCHASES REPORTED OVER AND ABOVE THE INCOME RETURNED IN PLACE OF DISALLOWANCE MADE UNDER SECTION 69C OF THE ACT. THIS ADDITION IS CLEAR OF THE PROFITS DISCLOSED BY THE APPELLANT DURING THE YEAR. IN VIEW OF THIS THE GROUND IS PARTLY ALLOWED. 9. AS COULD BE SEEN FROM THE ABOVE THE LD.CIT(A) ALSO TAKEN NOTE OF THE CBDT INSTRUCTIONS WHICH THE LD.DR RELIED ON AND ESTIMATED THE PROFIT ELEMENT IN THE PURCHASES AT 4% AND 3%. WE ALSO FIND THAT MORE OR LESS SIMILAR ISSUE CAME UP BEFORE THE COORDINATE BENCH IN THE CASE OF M/S. AMY DIAM VEGA JEWELLERY P. LTD. V. DCIT IN ITA.NO. 5799 TO 5801/MUM/2016 AND THE COORDINATE BENCH BY O RDER DATED 28.09.2017 HELD AS UNDER: - 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE THE ASSESSMENTS WERE REOPENED BASED ON THE INFORMATION FROM THE DGIT(INVESTIGATIONS), MUMBAI THAT ASSESSEE IS A BENE FICIARY FROM THE ENTITIES OPERATED BY SHRI BHANWARLAL JAIN/SHRI PRAVEEN KUMAR JAIN WHEREIN THE SEARCH TOOK PLACE AND IT WAS FOUND THAT SHRI BHANWARLAL JAIN/SHRI PRAVEEN KUMAR JAIN WERE PROVIDING ONLY ACCOMMODATION ENTRIES AND THERE WERE NO ACTUAL SALE TRAN SACTIONS AND THE ASSESSEE COULD NOT PROVE THE MOVEMENT OF GOODS FROM THE SUPPLIERS TO THE ASSESSEE. IN THE ABSENCE OF DELIVERY CHALLANS, PROPER STOCK RECORDS AND BASED ON THE DEPOSITIONS OF THE SUPPLIERS THAT THEY HAVE PROVIDED ONLY ACCOMMODATION BILLS, T HE ASSESSING OFFICER HAS RIGHTLY CONCLUDED THAT THE ASSESSEE HAS OBTAINED ONLY BOGUS BILLS AND ASSESSEE MIGHT HAVE PURCHASED GOODS IN GRAY MARKET. THE ASSESSING OFFICER ESTIMATED THE GROSS PROFIT MARGIN ON SUCH PURCHASES AT 8% WHICH THE LD.CIT(A) REDUCED TO 4% TAKING NOTE OF THE REPORT OF THE TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO THE DEPARTMENT OF COMMERCE OBSERVING AS UNDER: - 7 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA 4.2. THE A.O CALLED UPON THE APPELLANT TO ESTABLISH THE GENUINENESS OF THE PURCHASES. THE AO NOTED THAT THE CONCERNS FROM WH OM PURCHASES WERE SHOWN DID NOT HAVE DOCUMENTS TO PROVE THE DELIVERY OF GOODS OF THE APPELLANT. THE CONCERNS FROM WHOM PURCHASES WERE CLAIMED TO BE MADE WERE OPERATING FROM PREMISES WHICH WERE IN THE NAME OF BHANWARLAL JAIN & FAMILY. THE SUPPLIERS/ BOGUS P ARTIES COULD NOT BE PRODUCED BEFORE THE A.O FOR EXAMINATION. THE A.O THEREFORE CONCLUDED THAT THE APPELLANT HAD MERELY RECEIVED BILLS BUT NOT THE MATERIAL/GOODS FROM THESE PARTIES. THOUGH THE APPELLANT HAD SHOWN CORRESPONDING SALES AGAINST THE PURCHASES CL AIMED, PURCHASES WERE MOST LIKELY MADE FROM GREY MARKET. WITHOUT BILL AND TO ADJUST THESE TRANSACTIONS, BOGUS BILLS WERE OBTAINED FROM BHANWARLAL JAIN GROUP. THE A.O CONCLUDED THAT THE DIAMONDS PURCHASED FROM THE GREY MARKET ARE CHEAPER THAN THE DIAMONDS S OURCED FROM GENUINE DEALERS. SUBSEQUENTLY THERE IS AN ELEMENT OF DISCOUNT IN THE CASE OF CASH PURCHASED IN THE GREY MARKET. THE A.O. THEREFORE COMPUTED THE ADDITIONAL G.P EARNED BY THE APPELLANT HAS 8% OF THE PURCHASE COST. ACCORDINGLY, DISALLOWANCE/ ADDIT ION OF .63,90,742/ - WAS MADE TO THE RETURNED INCOME 4.3. IN THE APPELLATE PROCEEDINGS THE LD.AR SUBMITTED THAT THE APPELLANT WAS ENGAGED IN THE BUSINESS OF TRADING IN POLISHED DIAMONDS AND MANUFACTURING OF JEWELLERY. THE APPELLANT HAD REQUESTED THE A.O. TO FURNISH THE COPIES OF DOCUMENTS RELIED UPON BY HIM FOR TREATING THE PURCHASES AS BOGUS AND TO ALSO ALLOW CROSS EXAMINATION OF THE ALLEGED PARTIES. NEITHER OF THE REQUEST WERE GRANTED BY THE A.O. THE APPELLANT HAD FURNISHED DETAILED CHART SHOWING NAME OF PARTIES, DATE OF PURCHASE, QUANTITY IN CARATS, AMOUNT IN RUPEES AND DETAILS OF EXPORTS MADE AGAINST EACH PURCHASES. STOCK BOOK REFLECTING THE PURCHASES WERE ALSO PRODUCED. LEDGER ACCOUNTS IN RESPECT OF THE PURCHASES AND COPY OF INVOICES FOR THE PURCHASE A ND CORRESPONDING SALES WERE ALSO FURNISHED. IT WAS CONTENDED THAT THE INITIAL BURDEN ON THE APPELLANT TO PROVE THE GENUINENESS OF THE PURCHASES WAS FULFILLED. THE A.O HAS NOT CONDUCTED ANY ENQUIRY AS REGARDS THE ALLEGED BOGUS TRANSACTIONS OF THE APPELLANT. NO DEFECTS HAVE BEEN FOUND IN THE BOOKS. THE COPIES OF THE MATERIAL BASED ON WHICH THE A.O. CONCLUDED THAT THE PURCHASES ARE NOT 8 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA GENUINE WAS NOT PROVIDED TO THE APPELLANT. ONCE THE SALES (PRIMARILY EXPORTS) ARE NOT DOUBTED, NO ADDITION CAN BE MADE BY DOUB TING THE PURCHASES. AS REGARDS THE ABSENCE OF DELIVERY CHALLAN, IT WAS SUBMITTED THAT THE A.O COMPLETELY IGNORED CONFIRMATION ON THE PURCHASE BILLS BY THE APPELLANT BY SIGNING ON THE FACE OF THE BILL AS IS THE PRACTICE IN DIAMOND TRADE. THE ALLEGATION THAT THE PURCHASE IS FROM GREY MARKET IS BASED ON PRESUMPTIONS AND SURMISES. IT WAS ALSO CONTENDED THAT THE ESTIMATION OF GROSS PROFITS @8% WAS QUITE HIGH REFERENCE WAS MADE TO ITS OWN TRANSFER PRICING STUDY REPORT AND THE REPORT OF TASK GROUP SUBMITTED IN FEB RUARY 2013 PRESENTED TO THE COMMERCE AND INDUSTRY MINISTRY. IT WAS ALSO SUBMITTED THAT ALL THE IMPUGNED PURCHASES ARE EXPORTED. POLISHED DIAMONDS ARE PURCHASED LOCALLY AND EXPORTED. FURTHER, THAT WHERE H FORM IS SUBMITTED, THERE IS NO LEVY OF VAT AND IN TH E CASES WHERE VAT IS LEVIED, THE SAME IS REFUNDED SUBSEQUENTLY AFTER EXPORT OF DIAMONDS. THE APPELLANT RELIED ON THE DECISION OF THE HON'BLE ITAT IN THE CASE OF SAY INDIA JEWELLERS IN ITA NO.6735/MUM/2010 STATING THAT NO ADDITION SHOULD BE MADE. 4.4. I HAV E CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY. IN THE FACE OF CATEGORICAL DENIAL BY THE ALLEGED SUPPLIERS OF DIAMONDS OF ANY REAL SUPPLY OF GOODS, AND THE APPELLANT'S INABILITY TO ESTABLISH THE FACTS TO BE OTHERWISE, THE DISALLOWANCE OF PURCHASES IS CLEARLY IN ORDER. THE ACTION OF THE ASSESSING OFFICER OF DISALLOWING A PERCENTAGE OF IMPUGNED PURCHASES IS IN LINE WITH THE VIEW EXPRESSED IN THE DECISIONS SUCH AS IN THE CASE OF CIT VS. BHOLANATH POLYFAB PVT. LTD. (2013) 355 ITR 290 AND THEREAFTER IN THE CASE OF CIT VS. SIMIT P. SHETH (2013) 219 TAXMAN 85 (GU]. 4.5. IT IS NOTED THAT THERE IS NOTHING DISTINGUISHABLE TO IDENTIFY THE SALES AS CORRESPONDING TO THE PURCHASES. HOWEVER, THE SUBMISSION THAT THE MARGIN ON TRADING IN POLISHED DIAMONDS IS LOW IS SUPPORTED BY THE REPORT OF THE TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE IN WHICH IT WAS REPORTED THAT NET PROFIT IN DIAMOND MANUFACTURING IS IN THE RANGE OF 1.5 TO 4.5% AND IN TRADING IN THE RANGE OF 1 TO 3%. THE APPELLANTS BUSINES S IS OF TRADING IN POLISHED DIAMONDS IN RESPECT OF THE IMPUGNED PURCHASES. THUS, A MARGIN OF 4% IS CONSIDERED TO BE APPROPRIATE. 9 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA 10. ON A CAREFUL CONSIDERATION OF THE TOTALITY OF FACTS AND CIRCUMSTANCES AND THE FINDINGS OF THE LD.CIT(A), WE DO NOT SEE ANY VALID REASON TO INTERFERE WITH THE FINDINGS AND THE DECISION ARRIVED AT BY THE LD.CIT(A) IN ESTIMATING THE GROSS PROFIT AT 4% OF THE BOGUS PURCHASES AS AGAINST 8% ESTIMATED BY THE ASSESSING OFFICER. THUS, WE UPHOLD THE ORDER OF THE LD.CIT(A) FOR ALL THESE ASSESSMENT YEARS I.E. 2010 - 11, 2011 - 12 AND 2012 - 13. 10. AS COULD BE SEEN FROM THE ABOVE THAT THE COORDINATE BENCH WHILE SUSTAINING THE ORDER OF THE LD.CIT(A) ALSO CONSIDERED THE REPORT OF TASK GROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE, WHE REIN IT WAS SUBMITTED THAT NET PROFIT IN DIAMOND MANUFACTURING IS IN THE RANGE OF 1.5% TO 4.5% AND IN TRADING IT IS IN THE RANGE OF 1% TO 3%. THE ASSESSEE BEFORE US SUBMITTED THAT HE IS INTO 100% EXPORTS OF TRADING OF CUT AND POLISH DIAMONDS. THE TASK G ROUP FOR DIAMOND SECTOR SUBMITTED TO DEPARTMENT OF COMMERCE ALSO SUGGESTS THAT THE PROFIT MARGIN IN TRADING OF GOODS IS IN THE RANGE OF 1% TO 3%. IN THE CIRCUMSTANCE WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT FROM THE PURCHASES TREATED AS NON - GENUINE AT THE RATE OF 2% UNIFORMLY FOR ALL THE ASSESSMENT YEARS 2007 - 08, 2008 - 09, 2010 - 11, 2011 - 12 AND 2013 - 14. THE GROUNDS RAISED BY THE REVENUE FOR THE ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2011 - 12 AND THE GROUNDS RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2008 - 09, 2010 - 11, 2011 - 12 AND 2013 - 14 ON THIS ISSUE ARE DISMISSED AND GROUND RAISED BY THE ASSESSEE ON THIS ISSUE FOR THE ASSESSMENT YEAR 2007 - 08 IS PARTLY ALLOWED. 6. WE FURTHER FIND THAT WHAT ADVANTAGE THE ASSESSEE COULD HAVE GOT ON PURCHASING THE DIAMONDS IN GRAY MARKET WAS ONLY 1% BEING THE VAT, AS THE ASSESSEE MADE PURCHASES IN THE GREY MARKET WITHOUT PAYING VAT, BUT OBTAINED ONLY THE ACCOMMODATION ENTRIES. FURTHER AS PER THE REPORT OF THE TASK GROUP CONSTITUTED BY THE DEPARTMENT OF COMMERCE THE MARGIN IN TRADING IN THE DIAMOND INDUSTRY WAS ONLY 1 TO 3%. THEREFORE, TAKING THE AVERAGE OF THE INDUSTRY AVERAGE I.E. 2% AND THE ADVANTAGE WHICH THE ASSESSEE GOT FROM PURCHASES FROM THE GRAY MARKET I.E. 1% TOWARDS VAT, IN OUR VIEW AT BEST THE DISALLOWANCE CAN BE MADE ONLY AT 3%. THEREFORE, 10 ITA NO. 5854/MUM/2018 (A.Y: 2013 - 14) SHRI ANIL M. KADAKIA TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE ARE OF THE VIEW THAT THE PROFIT ELEMENT MARGIN EMBEDDED IN THESE PURCHASE TRANSACTIONS SHOULD BE TAKEN @3% FOR THE ASSESSMENT YE AR UNDER CONSIDERATION I.E. 2013 - 14. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT ELEMENT @3% OF THE PURCHASES TREATED AS NON - GENUINE AND RE - COMPUTE THE INCOME OF THE ASSESSEE FOR THE A.Y. 2013 - 14. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOU NCED IN THE OPEN COURT ON THE 29 TH OCTOBER , 2019 SD/ - SD/ - (RAJESH KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 29 / 10 / 2019 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM