DCIT11(1)(1), MUMBAI V. RENAISSANCE JEWELLERY LTD, MUMBAI

ITA 6279/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8700 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 17-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Bogus purchase; Opportunity of being heard; Set aside
• Section: 201; 12

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI RAVISH SOOD (JM) I.T.A. NO. 6279 /MUM/ 201 7 (ASSESSMENT YEAR 20 13 - 1 4 ) I.T.A. NO. 6130/MUM/2017 (ASSESSMENT YEAR 2011 - 12) DCIT 11(1)(1) ROOM NO. 204 AAYAKAR BHAV AN M.K. ROAD MUMBAI - 400 020. V S . M/S. RENAISSANCE JEWELLERY LTD. PLOT NO. 36A & 37, MIDC, MAROL, SEEPZ ANDHERI EAST MUMBAI - 400 096. PAN : AACCR2148B ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI SANJAY PARIKH DEPARTMENT BY SHRI D.G. PANSARI DA TE OF HEARING 18 . 6 . 201 9 DATE OF PRONOUNCEMENT 11 . 9 . 201 9 O R D E R PER SHAMIM YAHYA (AM) : - THE SE ARE APPEALS BY THE REVENUE WHEREIN THE REVENUE IS AGGRIEVED THAT THE LEARNED CIT - A HAS ERRED IN SUSTAINING 3% DISALLOWANCE ON ACCOUNT OF BOGUS PURC HASES, VIDE RESPECTIVE ORDER S PERTAINING TO A.Y S . 2011 - 12 & 2013 - 14. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING AND EXPORT ING OF DIAMOND JEWELLERY . 3. THE ASSESSMENT IN THIS CASE WAS REOPENED UPON RECEIPT OF I NFORMATION FROM THE INVESTIGATION WING OF THE DEPARTMENT THAT THE ASSESSEE HAS MADE BOGU S PURCHASES. THE ASSESSEE SUBMITTED THE PURCHASE VOUCHERS AND THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL. HOWEVER, THE SUPPLIERS WERE NOT PRODUCED BEFORE THE AS SESSING OFFICER S ALES IN THIS CASE WERE NOT DOUBTED NOR THE EXPORT S ARE DOUBT ED . M/S. RENAISSANCE JEWELLERY LTD. 2 4. THE INCOME TAX OFFICER IN THIS CASE HAS MADE 100% ADDITION ON ACCOUNT OF BOGUS PURCHASE RESULTING IN DISALLOWANCE S AS UNDER : - A.Y. 2011 - 12 RS. 1,77,89,361/ - A.Y. 2013 - 14 RS. 4,60,90,422/ - 5. UPON ASSESSEES APPEALS LEARNED CIT(A) RESTRICTED THE SAME TO 3% OF BOGUS PURCHASES. 6 . AGAINST ABOVE ORDER REVENUE IS IN APPEAL BEFORE THE ITAT. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 7 . UPON CAREFUL CONSIDE RATION , WE FIND THAT ASSESSEE HAS PROVIDED THE DOCUMENTARY EVIDENCE FOR THE PURCHASES. ADVERSE INFERENCE HAS BEEN DRAWN DUE TO THE INABILITY OF THE ASSESSEE TO PRODUCE THE SUPPLIERS . WE FIND THAT IN THIS CASE THE SALES HAVE NOT BEEN DOUBTED. IT IS SETTLED LAW THAT WHEN SALES ARE 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 HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DT. 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED PERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBTED. HOWEVER THIS WAS A CASE OF TRADER A ND 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 ASSESSEE SAVINGS ON ACCOUNT OF NON - PAYME NT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. AS REGARDS THE QUANTIFICATION OF THE PROFIT ELEMENT EMBEDDED IN MAKING OF SUCH BOGUS/UNSUBSTANTIATED PURCHASES BY THE ASSESSEE. WE FIND THAT AS HELD BY HONOURABLE HIGH COURT OF BOMBAY IN ITS R ECENT JUD GEMENT IN THE CASE OF P RINCIPLE COMMISSIONER OF INCOME TAX VERSUS M HAJI ADAM & CO (ITA NUMBER 1004 OF 2016 DATED 11/2/2019 IN PARAGRAPH 8 THERE OFF) /THE ADDITION IN M/S. RENAISSANCE JEWELLERY LTD. 3 RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROFIT RA TE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURCHASES. 8 . WE NOTE THAT IN THE PRESENT CASE LEARNED CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 3% OF THE BOGUS PURCHASE. WE ALSO NOTE THAT TH E S E ARE APPEALS BY THE REVENUE. IN THE SE CIRCUMSTANCES WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE DIFFERENCE OF GROSS PROFIT BETWEEN THE GENUINE PURCHASE AND THE BOGUS PURCHASE. IF THE DIFFERENCE IS LESS THAN 3% THE ORDER OF LEARNED CIT(A) SHALL PREVAIL. IF THE DIFFERENCE IN THE GROSS PROFIT RATE BETWEEN GENUINE PURCHASE AND BOGUS PURCHASE IS MORE THAN 3% THE DISALLOWANCE SHALL BE MADE TO THE EXTENT OF THE SAID DIFFERENCE. WITH THE S E DIRECTION S, THE MATTER IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO ADD THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD 9 . IN THE RESULT, REVENUES APPEALS ARE PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 11 . 9 . 201 9 . SD/ - SD/ - (RAVISH SOOD ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 11 / 9 / 20 1 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUA RD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI