AHINSA EXPORTS, MUMBAI V. ITO 19(1)(1), MUMBAI

ITA 6342/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9734 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 27-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Assessee Lawyers: R K SINHA
• Keywords: Reopening of assessment; Bogus purchase; Search and seizure; Accommodation entries
• Section: 148

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 6342 /MUM/ 201 6 (ASSESSMENT YEAR 20 07 - 08 ) AHINSA EXPORTS 401, MEHTA MAHAL 4 TH FLOOR, 15 MATHEW ROAD OPERA HOUSE MUMBAI - 400 004. PAN : AAEFA9111E VS. ITO - 19 (1)(1) MATRU MANDIR INCOME TAX MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI R.K. SINHA DEPARTMENT BY SHRI S.K. BEPARI DATE OF HEARING 1 1 .9. 201 7 DATE OF PRONOUNCEMENT 11 . 9 . 201 7 O R D E R THE APPEAL FILED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER DATED 19.9.2016 PASSED BY THE LEARNED CIT(A) - 30, MUMBAI AND IT RELATES TO A.Y. 2007 - 08. THE ASSESSEE HAS CHALLENGED THE ORDER PASSED BY THE LEARNED CIT(A) ON FOLLOWING ISSUES : (A) VALIDITY OF REOPENING OF ASSESSMENT (B) PARTIALLY SUSTAININ G THE ADDITION RELATING TO BOGUS PURCHASES 2. I HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS AN EXPORTER OF CUT AND POLISHED DIAMONDS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 27.10.2007 DECLARING A TO TAL INCOME OF ` 18.83 LAKHS. THE REVENUE CARRIED OUT SEARCH AND SEIZURE OPERATION IN THE CASE OF MR. BHANWARLAL JAIN AND ITS GROUP CONCERNS. IT WAS NOTICED THAT THEY WERE ALL INVOLVED IN PROVIDING ACCOMMODATION ENTRIES IN THE FORM OF UNSECURED LOAN, ISSUIN G OF BOGUS SALES BILLS ETC. IT WAS NOTICED THAT THE ASSESSEE HAS OBTAINED ACCOMMODATION ENTRIES IN THE FORM OF PURCHASE OF DIAMONDS FROM THREE CONCERNS BELONGING TO BHANWARLAL JAIN GROUP. ACCORDINGLY, THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUIN G NOTICES U/S. 148 OF THE ACT. THE AHINSA EXPORTS 2 ASSESSEE HAD MADE PURCHASES FROM THE THREE CONCERNS AGGREGATING TO ` 2,18,31,878/ - . AFTER HEARING THE ASSESSEE, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE WOULD HAVE PURCHASED DIAMONDS FROM GREY MARKET AND NOT FROM THE ABOVE SAID PARTIES, SINCE THE ASSESSEE COULD RECONCILE THE PURCHASES AND SALES. THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE COULD HAVE MADE PROFIT BY PURCHASING DIAMONDS FROM THE GREY MARKET AT A LOWER RATE, WHICH THE ASSESSING OFFICER E STIMATED AT 8%. ACCORDINGLY, THE ASSESSING OFFICER ASSESSED 8% OF THE ALLEGED BOGUS PURCHASES WHICH WORKED OUT TO ` 17.46 LAKHS AS ADDITIONAL INCOME EARNED BY THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME. 3. THE LEARNED CIT(A) NOTICED THAT THE V AT RATE APPLICABLE TO DIAMOND TRADE AT 1% IN MAHARASHTRA AND 0% IN SOME OTHER PLACES LIKE SURAT. HE ALSO NOTICED THAT THE TASK FORCE GROUP FOR DIAMOND INDUSTRIES CONSTITUTED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, RECOMMENDED PRESUM PTIVE TAX FOR NET PROFIT CALCULATED @ 2% FOR TRADING ACTIVITY AND @ 3% FOR MANUFACTURING ACTIVITY. THE LEARNED CIT(A) ALSO ASCERTAINED THAT TP WING OF THE REVENUE IS DETERMINING OPERATING PROFIT OF DIAMOND TRADERS IN RANGING 1.75% TO 3%. ACCORDINGLY, THE L EARNED CIT(A) TOOK THE VIEW THAT THE ADDITION SHOULD BE SUSTAINED TO THE EXTENT OF 3% OF THE PURCHASES, AS AGAINST 8% MADE BY THE ASSESSING OFFICER. ACCORDINGLY, THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 3% OF THE ALLEGE D BOGUS PURCHASES. 4. BEFORE THE LEARNED CIT(A) THE ASSESSEE ALSO CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENT BUT THE LEARNED CIT(A) REJECTED THE SAME. 5. AGGRIEVED BY THE ORDER PASSED BY THE LEARNED CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFO RE US. 6. FIRST ISSUE RELATES TO VALIDITY OF REOPENING OF ASSESSMENT. LEARNED AR INVITED OUR ATTENTION TO THE REASONS RECORDED BY THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER, IN THE INITIAL PARAGRAPH, HAS MENTIONED ABOUT SEARCH AND SURV EY OPERATION CONDUCTED IN THE CASE OF MR. BHANWARLAL AHINSA EXPORTS 3 JAIN AND GROUP AND STATED THAT THE SAID GROUP IS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES OF BOGUS UNSECURED LOANS AND ADVANCES TO VARIOUS BENEFICIARIES. HE SUBMITTED THAT THE ASSESSING OFFICER DID NOT MENTION ANYTHING ABOUT THE BOGUS ACCOMMODATION BILLS PROVIDED BY THEM IN THIS PARAGRAPH. HE SUBMITTED THAT THOUGH THE ASSESSING OFFICER HAS RECORDED DETAILS OF ALLEGED BOGUS PURCHASES IN PARAGRAPH 3 OF THE REASONS, YET THERE IS NO CONNECTION BETWEEN PARAG RAPH 1 & 3. ACCORDINGLY HE SUBMITTED THAT THE REASONS RECORDED BY THE ASSESSING OFFICER WOULD GET VITIATED. ACCORDINGLY HE CONTENDED THAT THE REOPENING IS BAD IN LAW. 7. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SEARCH AND SEIZ URE ACTION CONDUCTED IN THE HANDS OF MR. BHANWARLAL JAIN AND GROUP HAS REVEALED THAT THEY ARE ENGAGED IN PROVIDING ACCOMMODATION ENTRIES BY WAY OF BOGUS UNSECURED LOANS AND ADVANCES AND ALSO BY WAY OF PROVIDING BOGUS PURCHASE BILLS. THE ASSESSING OFFICER H AS LISTED OUT ACTUAL AMOUNT OF PURCHASES MADE BY THE ASSESSEE FROM THE ABOVE SAID GROUP IN PARAGRAPH 4 OF THE REASONS AND CLEARLY STATED THAT INCOME CHARGEABLE TO TAX TO THE TUNE OF ` 2.18 CRORES, BEING ALLEGED BOGUS PURCHASES, HAS ESCAPED FROM ASSESSMENT. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT AFTER RECORDING PROPER REASONS AND HENCE REOPENING IS VALID IN THE EYES OF THE LAW. 8. I HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. A C AREFUL PERUSAL OF THE REASONS RECORDED BY THE ASSESSING OFFICER WOULD SHOW THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT IN ORDER TO ASSESS THE ALLEGED BOGUS PURCHASES OR ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT. IN PARAGRAPH 3 OF THE REASONS , THE ASSESSING OFFICER HAS LISTED OUT THE NAMES OF THE CONCERNS AND THE QUANTUM OF PURCHASES MADE FROM THEM. HENCE, IN OUR VIEW THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON PROPER REASONING. LEARNED AR HAS INVITED OUR ATTENTION TO THE INITIAL PARA GRAPH OF THE REASONS AND SUBMITTED THAT THE ASSESSING OFFICER DID NOT MENTION ANYTHING ABOUT THE BOGUS PURCHASE BILLS. IN MY VIEW, ONE HAS TO CONSIDER THE REASONS RECORDED BY AHINSA EXPORTS 4 THE ASSESSING OFFICER IN TOTALITY AND THEN EXAMINE AS TO WHETHER THE ASSESSING O FFICER WAS HAVING PROPER REASONS FOR REOPENING THE ASSESSMENT OR NOT. IN THE INITIAL PARAGRAPH, THE AO HAS SIMPLY MENTIONED ABOUT THE SOURCES OF HIS INFORMATION AND ONLY IN PARAGRAPH 3, THE AO RECORDS HIS REASONS FOR REOPENING OF ASSESSMENT. IN MY VIEW TH E ASSESSING OFFICER HAS RECORDED PROPER REASONS FOR REOPENING THE ASSESSMENT ON THE BASIS OF MATERIAL AVAILABLE WITH HIM AND HENCE REOPENING CANNOT BE HELD TO BE INVALID IN LAW. ACCORDINGLY, I UPHOLD THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 9. THE ASSESSEE HAS ALSO CHALLENGED THE ORDER PASSED BY THE LEARNED CIT(A) IN PARTIALLY SUSTAINING THE ADDITION MADE BY THE ASSESSING OFFICER. AS STATED EARLIER, THE ASSESSING OFFICER ADDED 8% OF ALLEGED BOGUS PURCHASES AND THE LEARNED CIT(A) HAS REDUCED THE SAME TO 3%. 10. I HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. I NOTICED THAT THE LEARNED CIT(A) HAS REDUCED THE ADDITION TO 3% OF THE ALLEGED BOGUS PURCHASES WITH THE FOLLOWING OBSERVATIONS : - 8.15 HOWEVER AO ESTIMATED THE PROFIT MARGIN 8% AND THE REASONS GIVEN ARE THAT, 'MOST OF THE TRADERS IN THE MARKET ACTUALLY OPERATE AT THIS LEVEL OF MARGIN IN THE OPEN MARKET, THIS FACT WAS IDENTIFIED BY THE GO I INTRODUCING THE BENIGN ASSESSMENT PROCEDURE (BAP) FOR THE ASSESSE E S WHO ARE INTO MANUF ACTURING AND/OR TRADING OF DIAMONDS. BAP WAS TO BE APPLICABLE FOR THOSE DIAMOND MERCHANTS, WHO WERE SHOWING A PROFIT MARGIN OF 8% OF THEIR TURNOVER. ALTHOUGH, THIS BAP TALKS ABOUT THE NET PROFIT MARGIN (NP), FOR A PETTY DEALER, OPERATING WITHOUT ANY ESTABL ISHMENT, THE GP WOULD BE ALMOST SIMILAR TO NP. HENCE, IT WAS ASSUMED THAT THE MARGIN IN THE MARKET, FOR A PETTY DEALER, WOULD BE 8%, WHICH IS THE SAME MARGIN THAT IS NOW BEING ADOPTED FOR PURCHASES MADE IN CASH FROM THE GREY MARKET AND FOR WHICH THE BILLS ARE PROCURED FROM THE BHANWARLAL JAIN GROUP CONCERNS'. THOUGH I AM IN AGREEMENT WITH THE REASONING OF THE AO FOR ESTIMATING OF THE PROFIT PERCENTAGE, I FEEL THAT THE AO HAS NOT GIVEN THE CORRECT REASONING FOR ESTIMATION OF THE PROFIT PERCENTAGE @ 8% IN THI S NATURE OF TRADE. WHILE DECIDING THE PROFIT ELEMENT EMBEDDED IN THE BOGUS PURCHASE CASES, GUJARAT HIGH COURT ADOPTED THE PROFIT @ 12.5% BY TAKING THE BENEFIT DERIVED OUT OF THE SAVING OF TAXES, CONSIDERING THE PROFIT MARGIN IN THAT LINE OF TRADE. IN THE L IGHT OF THE ABOVE, ONE HAS TO SEE IN THE PRESENT CASE, WHO ARE IN THE MANUFACTURING AND TRADING OF DIAMONDS, THE PROF IT ELEMENT EMBEDDED ESTIMATION @ 8% IS CORRECT OR NOT. IN DIAMOND TRADE THE RATE OF VAT IS AHINSA EXPORTS 5 STATED TO BE 1% AND IN SOME PLACES LIKE SURAT TH E SAME IS FULLY EXEMPT. COMING TO THE PROFIT MARGIN IN THE TRADE, 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 PRO FIT CALCULATED @2% OF TRADING ACTIVITY AND @3% FOR MANUFACTURING ACTIVITY OR 2.5% ACROSS THE BOARD. IT IS ALSO ASCERTAINED THAT THE OPERATING PROFIT IN CASE OF DIAMOND TRADING FOR COMPUTATION OF ALP BY THE TP WING IS CONSISTENTLY IN THE REGION OF AROUND 1.75% TO 3%. IT IS ALSO BROUGHT TO MY NOTICE THAT THE AOS ARE ALSO ADOPTING 3% ON THE PURCHASES MADE FROM BHANWARLAL GROUP CONCERNS, AS THE PROFIT ELEMENT EMBEDDED, IN THE SUBSEQUENT ASSESSMENTS FINALISED ON THE SIMILAR SET OF FACTS. IN VIEW OF THE SAME AN D ALSO SINCE THE PROFIT MARGIN IS LESSER IN THIS SECTOR, ADOPTING 8% BY THE AO, IS NOT BASED ON CORRECT FOOTING. CONSIDERING THE LESSER PROFIT MARGIN IN THIS SECTOR I.E. AROUND 2 TO 3 PERCENT AND THE TAXES SAVED IS AROUND 1% AND ALSO ON PURCHASES MADE FROM PLACES LIKE SURAT, THERE IS NO LEVY OF TAX; I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS SUSTAINED TO THE EXTENT OF 3 % OF THE PURCHASES MADE AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES FROM THE TWO PARTIES BELONGING TO THE BHANWARLAL GROUP CONCERNS, THE SAME WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY I DIRECT THE AO TO RESTRICT THE ADDITION 3%, ON THE TOTAL PURCHASES OF RS. 2,18,31,878 / - FROM THE THREE PARTIES AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. GROUNDS RAISED ON THIS ISSUE A RE 'PARTLY ALLOWED'. 11. I HEARD THE PARTIES ON THIS ISSUE AND GONE THROUGH THE ORDER PASSED BY THE LEARNED CIT(A). I NOTICED THAT THE LEARNED CIT(A) HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEE HAS MAINTAINED QUANTITY DETAILS AND ASSESSING OFFICER HAS N OT DOUBTED THE GENUINENESS OF THE SALES. FURTHER, THE LEARNED CIT(A) HAS TAKEN NOTE OF THE REPORT GIVEN BY THE TASK FORCE GROUP FOR DIAMOND INDUSTRY AND ACCORDINGLY RESTRICTED THE ADDITION TO 3% OF THE PURCHASES. BEFORE ME, THE ASSESSEE COULD NOT FURNISH A NY OTHER MATERIAL WHICH WOULD COMPEL ME TO INTERFERE WITH THE DECISION TAKEN BY THE LEARNED CIT(A). ACCORDINGLY, I UPHOLD THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 11 . 9 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER AHINSA EXPORTS 6 MUMBAI ; DATED : 11 / 9 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI