MANUBHAI GEMS PVT LTD, MUMBAI V. DCIT CC2 (3), MUMBAI

ITA 7301/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2859 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR LD
• Assessee Lawyers: VIJAY MEHTALD
• Keywords: Reopening of assessment; Bogus purchase; Unexplained expenditure; Income from undisclosed sources; Loose papers; Peak credit; Question of law; Accommodation entries; Retraction; Reassessment proceedings
• Section: 69C; 143(3); 133A; 37(1); 13; 148

Judgement Text

ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.7301/MUM/2019 ( / ASSESSMENT YEAR: 2010-11) MANUBHAI GE MS PRIVATE LTD. SHOP NO.5/6/7 MEGH OPP. HSBC, FACTORY LANE CORNER BORIVALI WEST, MUMBAI-400 092. / VS. D C IT - CENTRAL CIRCLE - 2(3) ROOM NO. 803, 8 TH FLOOR OLD CGO BUILDING ANNEXE M.K. MARG, MUMBAI-400 020. ! ./ ./PAN/GIR NO. AAACW-7711-P ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : SHRI VIJAY MEHTA- LD. AR REVENUE BY : SHREE V.SREEKAR-LD.DR / DATE OF HEARING : 11/02/2020 / DATE OF PRONOUNCEMENT : 16/03/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1.1 AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEA R [IN SHORT REFERRED TO AS AY] 2010-11 CONTEST THE ORDER OF L D. COMMISSIONER OF INCOME-TAX (APPEALS)-48, MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-48/IT-196/DCCC--2(3)/2015-16 DATED 31/10/2019 ON FOLLOWING GROUNDS OF APPEAL:- ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 2 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING ADDITION OF RS.13,02,88,386/- ON ALLEGED GROUND OF BOGUS PUR CHASES U/S 69C. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN HOLDING THAT CASH HAS BEEN PAID ON THE DATE ON WHICH BOGUS PURCHASE B ILL HAS BEEN ENTERED IN THE BOOKS OF ACCOUNTS AND THE SAME IS NOT SUPPORTED BY FACTS OF THE CASE AS WELL AS FACTS ON RECORD. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN HOLDING THAT ADDITION ON ACCOUNT OF PEAK CREDIT IS ALSO UPHELD. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO APPRECIATE THAT THE ALLEGED TRANSACTIONS WITH THREE PARTIES WERE MERE B OOK ENTRIES AND WERE NOT SUPPORTED BY MOVEMENT OF GOODS NOR OF FUNDS AND THE REFORE THE SAME CANNOT BE TREATED AS INCOME. 5. THE APPELLANT PRAYS THAT: I) ADDITION OF RS. 13,02,88,386/- MAY BE DELETED; II) PROCEEDINGS FOR RECOVERY OF DISPUTED DEMAND MAY BE STAYED TILL HEARING AND FINAL DISPOSAL OF THE APPEAL; III) THE APPEAL MAY BE FIXED FOR OUT OF TURN HEARING; IV) ANY OTHER RELIEF YOUR HONOURS MAY DEEM FI T. 1.2 THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE (AR), VIDE LETTER DATED 07/02/2020, FILED ADDITIONAL GROUND OF APPEAL WHICH READ AS UNDER:- THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ADDI TION MADE BY THE ASSESSING OFFICER IN RESPECT OF PEAK CREDIT IS BEYOND THE SCO PE OF REASSESSMENT AND HENCE, UNSUSTAINABLE. THE LD. AR PLEADED FOR ADMISSION OF THE SAME BY SUB MITTING THAT THE ADJUDICATION OF THE SAID GROUND DOES NOT REQUIRE AP PRECIATION OF NEW FACTS AND RAISES PURE QUESTION OF LAW. FOR THE SAID SUBMISSIONS, RELIANCE HAS BEEN PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN NATIONAL THERMAL POWER CORPORATION VS. CIT [229 ITR 383]; JU TE CORPORATION OF INDIA LTD. VS. CIT [187 ITR 688] AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [199 ITR 351 ]. GOING BY THE RATIO OF AFORESAID DECISIONS, THE ADDI TIONAL GROUND WAS ADMITTED. ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 3 1.3 WE HAVE CAREFULLY HEARD THE ARGUMENTS ADVANCED BY BOTH THE REPRESENTATIVES VIS--VIS GROUNDS OF APPEAL. WE HAV E ALSO PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLA CED IN THE PAPER- BOOK. THE JUDICIAL PRONOUNCEMENTS AS CITED BEFORE U S HAS BEEN DELIBERATED UPON. OUR ADJUDICATION TO THE ISSUES RA ISED IN THE APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. FROM TH E PERUSAL OF AUDITORS REPORT, IT TRANSPIRES THAT THE ASSESSEE W AS FORMERLY KNOWN AS WESTEND DIAMONDS PRIVATE LTD. 2.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT COR PORATE ASSESSEE STATED TO BE ENGAGED IN TRADING OF GOLD JEWELLERY W AS ASSESSED FOR YEAR UNDER CONSIDERATION U/S. 143(3) R.W.S. 147 ON 29/03 /2015 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.1429.07 LAC AFTER SOLE ADDITION OF ALLEGED BOGUS PURCHASES FOR RS.1302.88 LACS AS AGAINST RETURNED INCOME OF RS.126.18 LACS E-FILED BY THE AS SESSEE ON 01/10/2010 WHICH WAS PROCESSED U/S.143(1). 2.2 UPON RECEIPT OF CERTAIN INFORMATION FROM SALES TAX DEPARTMENT THAT THE ASSESSEE MADE BOGUS PURCHASES TO INFLATE THE EX PENSES, THE ASSESSEE WAS SUBJECTED TO SURVEY ACTION U/S 133A ON 13/12/2012. ACCORDINGLY, THE CASE FOR YEAR UNDER CONSIDERATION WAS REOPENED VIDE NOTICE U/S 148 DATED 23/12/2013. IN RESPONSE, THE A SSESSEE OFFERED THE ORIGINAL RETURN AS FILED ON 01/10/2010. THE REASONS OF REOPENING WERE DULY COMMUNICATED TO THE ASSESSEE, IN DUE COURSE. 2.3 THE SURVEY WAS CONDUCTED AT 3 PREMISES VIZ. SHO P NOS. 5 TO 7 SITUATED AT BORIVALI (WEST), PREMISES SITUATED AT A -101-102 AT BORIVALI (WEST) AND PLOT NO.42 SITUATED AT GHATKOPAR. DURING THE COURSE OF SURVEY CERTAIN BOOKS OF ACCOUNTS, DOCUMENTS, LOOSE PAPERS AND ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 4 COMPUTER BACK UP ETC. WAS IMPOUNDED FROM THE PREMIS ES. THE SURVEY REPORT WAS HANDED OVER ON 20/03/2013. IN THE SURVEY REPORT, IT WAS STATED THAT THE WHILE MAKING PURCHASES FROM FOLLOWI NG PARTIES, THE STANDARD OPERATING PROCEDURE WAS NOT FOLLOWED BY AS SESSEE AS FOLLOWED FOR REGULAR PURCHASES: - NO. NAM E OF THE PARTIES AM O UNT OF PURCHASES (RS.) AY 1. SAILEELA TRADING PVT. LTD. 1271.20 LACS 2010-11 2. NIDDISH IMPEX PVT. LTD 157.45 LACS 2010-11 3. TULSIANI TRADING PVT. LTD. 117.95 LACS 2010-11 4. PRATEEK ENTERPRISES 1.02 LACS 2010-11 5. H.S.TRADING CO. 0.29 LACS 2010-11 6. SHRI VALLABH TRADERS 0.93 LACS 2011-12 TOTAL 15 48.84 LACS THESE 6 CONCERNS WERE STATED TO BE FIGURING IN THE LIST OF ENTITIES WHICH WERE PROCLAIMED BY THE SALES TAX DEPARTMENT AS PROV IDERS OF ACCOMMODATION BILL AND THEIR NAMES FEATURED IN THE LIST OF HAWALA / SUSPICIOUS DEALERS AS ENLISTED BY THE MAHARASHTRA S ALES TAX DEPARTMENT. 2.4 DURING SURVEY PROCEEDINGS, THE STATEMENT OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY, SHRI SAMIR ASHWIN SAGAR , WAS RECORDED. THE RELEVANT PORTIONS OF THE STATEMENTS HAVE ALREADY BE EN EXTRACTED ON PAGE NOS. 4 TO 6 OF THE QUANTUM ASSESSMENT ORDER. THE SA ID DIRECTOR ADMITTED THAT BULLION WAS PURCHASED FROM ENTITIES LISTED AT SERIAL NOS. 1 TO 3 WHEREAS PACKING MATERIAL WAS PURCHASED FROM THE OTH ER 3 ENTITIES. IN RESPONSE TO QUESTION NOS. 46 & 51, IT WAS ADMITTED THAT THE BILLS WERE RECEIVED FROM PARTIES LISTED AT SERIAL NOS. 1 TO 3 WHEREAS SOME PURCHASE OF BULLION WAS MADE IN THE OPEN MARKET. IN RESPONSE TO QUESTION NO.51, THE ASSESSEE ADMITTED THAT THE PURCHASES WERE MADE OUT OF ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 5 UNACCOUNTED INCOME. THE STATEMENT RECORDED ON OATH BEFORE SALES TAX AUTHORITIES BY THE 3 ENTITIES WAS ALSO SHOWN TO THE DIRECTOR. IN RESPONSE TO QUESTION NO.53, IT WAS ADMITTED THAT PACKING MAT ERIAL WAS PURCHASED FROM THE OPEN MARKET WHEREAS BILLS WERE OBTAINED FR OM PARTIES LISTED AT SERIAL NOS. 4 TO 6. IT WAS ALSO STATED THAT PACKING MATERIAL WAS UTILIZED IN THE COURSE OF BUSINESS. IN RESPONSE TO QUESTION NO. 54, IT WAS STATED THAT PURCHASES MADE FROM M/S SAILEELA TRADING PRIVATE LIMITED WERE FOR RS.1271.20 LACS. HOWEVER, THE WHOLE OF THE AMOUNT W AS NOT UNDISCLOSED INCOME OF THE ASSESSEE SINCE THE ASSESS EE MADE CHEQUE PAYMENTS OF RS.340 LACS TO THE SAID ENTITY OUT OF W HICH CASH WAS GENERATED WHICH WAS USED TO MAKE PURCHASES IN THE O PEN MARKET. THEREFORE, THE SAME WAS REQUIRED TO BE DEDUCTED FRO M THE SAID AMOUNT OF RS.1271.20 LACS. FINALLY, THE ASSESSEE ADMITTED AND DECLARED RS.1207.93 LACS AS ITS INCOME FOR AY 2010-11 AND AN OTHER RS.0.93 LACS FOR AY 2011-12. 2.5 HOWEVER, THE SAID STATEMENT WAS SUBSEQUENTLY RE TRACTED BY ANOTHER DIRECTOR I.E. SHRI ASWIN SAGAR WHO SUBMITTE D AN AFFIDAVIT DATED 18/12/2012 ON 08/04/2013 RETRACTING THE STATEMENT G IVEN DURING SURVEY PROCEEDINGS. AFTER RETRACTION, THE ASSESSEE STATED THAT PURCHASES TO THE EXTENT OF RS.1163.89 LACS WAS REVERSED BY ISSUING T HE SALES BILLS TO ENTITIES LISTED AT SERIAL NOS. 1 TO 3 IN SUBSEQUENT YEAR. THE MATERIAL STATED TO BE PURCHASED FROM THESE ENTITIES WAS REFL ECTED IN THE CLOSING STOCK AS ON 31/03/2010. THEREFORE, THERE WOULD BE N O IMPACT OF THESE PURCHASES ON THE PROFIT FOR THE YEAR UNDER CONSIDER ATION. FURTHER, THE PURCHASES TO THE EXTENT OF RS.1163.89 LACS WAS NEVE R MADE EITHER FROM THESE PARTIES OR FROM ANY OTHER BROKERS AND THE PUR CHASE BILLS WERE MERE ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 6 BOOK ENTRIES. HOWEVER, THE SAID RETRACTION WAS TERM ED AS MERE AFTER- THOUGHT BY LD. AO. 2.6 SUBSEQUENTLY, THE ASSESSEE WAS ASKED TO SUBSTAN TIATE THE PURCHASE TRANSACTIONS BY FILING REQUISITE DOCUMENTA RY EVIDENCES. IT WAS ALLEGED BY REVENUE THAT ALL THE ENTITIES GAVE THEIR STATEMENT BEFORE SALES TAX DEPARTMENT THAT THEY HAD PROVIDED ACCOMMODATION ENTRIES TO THE ASSESSEE AND HAVE ACCEPTED THAT THEY HAVE NOT SOLD ANY GOODS TO THE ASSESSEE BUT ONLY SUPPLIED BILLS. IN THE ABOVE BACK GROUND, LD. AO SHOW- CAUSED THE ASSESSEE TO MAKE DISALLOWANCE OF THESE P URCHASES. 2.7 IN RESPONSE, THE ASSESSEE SUBMITTED DOCUMENTARY EVIDENCES SUCH AS STOCK REGISTER, PURCHASE BILLS, SALES BILL, LEDG ER EXTRACTS ETC. HOWEVER, THE ASSESSEE FAILED TO PRODUCE ANY OF THE PARTIES F OR VERIFICATION OF THE TRANSACTIONS. 2.8 VIDE SUBMISSIONS DATED 26/03/2015, THE ASSESSEE INTER-ALIA, SUBMITTED THAT DUE TO TENSION AND ANXIETY, IT REMAI NED TO BE BROUGHT TO THE NOTICE THAT PURCHASES TO THE EXTENT OF RS.1163. 89 LACS WERE REVERSED IN BOOKS OF ACCOUNTS IN SUBSEQUENT FINANCI AL YEAR BY ISSUING SALES BILLS TO SAME 3 ENTITIES. THE DETAILS OF THE PURPORTED SALE HAVE ALREADY BEEN EXTRACTED ON PAGE NOS. 7 & 8 OF THE QU ANTUM ASSESSMENT ORDER. THEREFORE, IT WAS SUBMITTED THAT NET PURCHAS ES MADE FROM THE SAID PARTIES WOULD BE AS FOLLOWS: - NO. NAM E OF THE PARTIES TOTAL PURCHASES (RS.) LESS TRANSACTIONS REVERSED NET PURCHASES MADE FROM THE SAID PARTIES 1. SAILEELA TRADING PVT. LTD. 12,71,20,169/- 8,88,4 8,169/- 3,82,72,000/- 2. NIDDISH IMPEX PVT. LTD 1,57,45,395/- 1,57,45,395 /- NIL 3. TULSIANI TRADING PVT. LTD. 1,17,95,790/- 1,17,95 ,790/- NIL 4. PRATEEK ENTERPRISES 1,02,402/- NIL 1,02,402/- 5. H.S.TRADING CO. 29,250/- NIL 29,250/- ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 7 6. SHRI VALLABH TRADERS 93,499/- NIL 93,499/- TOTAL 15,48,86,505/ - 11,63,89,354/ - 3,84,97,151/ - IN THE ABOVE BACKGROUND, IT WAS SUBMITTED THAT THE ASSESSEE MADE PURCHASES FROM OPEN MARKET ONLY TO THE EXTENT OF RS .384.97 LACS (AY 2010-11 RS.384.04 LACS & AY 2011-12 RS.0.93 LACS). 2.9 REGARDING ESTIMATION ON PEAK CREDIT BASIS AS PR OPOSED BY LD. AO, THE ASSESSEE SUBMITTED THAT PEAK WAS TO BE COMPUTED ON THE BASIS OF PAYMENT OF RS.382.72 LACS MADE BY THE ASSESSEE TO T HESE ENTITIES AND NOT ON THE BASIS OF SUSPICIOUS PURCHASES OF RS.1548 .86 LACS BECAUSE NO PAYMENT WAS MADE FOR BILLS OF RS.1163.89 LACS AN D THE SAME WERE CIRCULAR TRANSACTIONS ONLY. 2.10 RELYING UPON THE DECISION OF HONBLE SUPREME C OURT IN CIT V/S S.KHADER KHAN & SONS (35 TAXMANN.COM 413) , A PLEA WAS ALSO RAISED THAT STATEMENTS MADE DURING THE COURSE OF SU RVEY U/S 133A WOULD NOT HAVE EVIDENTIARY VALUE AND ADDITIONS COULD NOT BE SUSTAINED SOLELY ON THE BASIS OF STATEMENTS WITHOUT THERE BEING ANY CORROBORATIVE MATERIAL ON RECORD TO PROVE THE EXISTENCE OF UNDISCLOSED INC OME. THE ATTENTION WAS ALSO DRAWN TO CBDT CIRCULAR DATED 10/03/2002 WI TH REGARD TO PRINCIPLES TO BE FOLLOWED WHILE EXTRACTING CONFESSI ONAL INCOME DURING THE COURSE OF SEARCH AND SURVEY OPERATIONS. 2.11 AFTER DUE CONSIDERATION OF FACTUAL MATRIX, LD. AO REJECTED ASSESSEES SUBMISSIONS. IT WAS NOTED BY LD. AO AT P ARA 6.6 THAT THE ASSESSEE HAD MADE CIRCULAR TRANSACTIONS TO THE EXTE NT OF RS.1163.89 LACS SINCE THE PURCHASES WERE SHOWN TO BE MADE IN A Y 2010-11 WHICH WAS SUBSEQUENTLY REVERSED IN NEXT AY 2011-12. THE S TATED PURCHASES ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 8 WERE ALSO INCLUDED IN CLOSING STOCK AS ON 31/03/201 0. FINALLY, IT WAS CONCLUDED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PR OVE THE FACTUM OF PURCHASES FROM ABOVE PARTIES AND THE ASSESSEE FAILE D TO DISCHARGE THE PRIMARY ONUS TO ESTABLISH THE GENUINENESS OF PURCHA SES AND SALES. THEREFORE, IT WAS CONCLUDED AS UNDER: - 6.9 THUS THE ONLY POSSIBILITY IS THAT THE MATERIAL HAS NOT BEEN RECEIVED FROM THESE PARTIES, RATHER THE MATERIAL, SHOWN TO BE PURCHASED FROM THE SALES TAX HAWALA PARTIES WERE ACTUALLY PURCHASED IN CASH, TO REGULAR IZED THE SAID CASH PURCHASE IN ITS BOOKS OF ACCOUNT THE ASSESSEE HAS TAKEN ACCOMMODATI ON ENTRIES FROM THESE BOGUS PARTIES. WHAT IS LIKELY THAT ASSESSEE IS ROTATING I TS FUNDS IN THE BUSINESS AND THE PEAK THEORY NEEDS TO BE APPLIED TO WORK OUT THE UNE XPLAINED INVESTMENT U/S 69C OF THE INCOME TAX ACT, 1961. 2.12 THE PEAK CALCULATION WAS MADE ON THE FOLLOWING BASIS: - (I) CASH HAS BEEN PAID ON THE DATE ON WHICH THE BOG US PURCHASE BILL HAS BEEN ENTERED IN THE BOOKS OF ACCOUNT. (II) CASH HAS BEEN RECEIVED BACK BY THE ASSESSEE ON THE DATE ON WHICH THE CHEQUE HAS BEEN ISSUED BY IT TO THE BOGUS PARTIES. (III) LEDGER ACCOUNT OF ALL THE 6 PARTIES HAVE BEEN MERGED TO WORK OUT THE ACTUAL CASH RECEIPT OR PAYMENT MADE BY THE ASSESSEE ON DAY TO DAY BASIS. ACCORDINGLY, LD.AO WORKED OUT INCREMENTAL CREDIT TO THE EXTENT OF RS.1302.88 LACS AND DISALLOWED THE SAME U/S 69C. 3.1 BEFORE LD. CIT(A), THE ASSESSEE ASSAILED THE ST AND OF LD. AO BY WAY OF ELABORATE SUBMISSIONS BUT THE SAME COULD NOT FIND FAVOR WITH LD. CIT(A). THE LD. CIT(A) SUMMARILY REJECTED THE RETRA CTION OF STATEMENT MADE BY ONE PERSON BY ANOTHER PERSON. 3.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, REM AND PROCEEDINGS WERE INITIATED WHICH WAS DULY CONFRONTED TO THE ASS ESSEE. THE ASSESSEE REITERATED THAT THERE WERE CIRCULAR TRANSACTIONS FO R RS. 1163.89 LACS, A FACT WHICH WAS DULY ACCEPTED BY LD. AO AND THEREFOR E, THE ADDITIONS SHOULD BE BASED ON REMAINING SUSPICIOUS PURCHASES. HOWEVER, THE ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 9 SAME COULD NOT CONVINCE LD. CIT(A) WHO UPHELD THE A CTION OF LD. AO IN MAKING ADDITIONS ON THE BASIS OF PEAK CREDIT THEORY . AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. ADJUDICATION ON LEGAL GROUNDS 4.1 THE LD. AUTHORIZED REPREHENSIVE FOR ASSESSEE (A R), PRIMARILY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COU RT IN CIT V/S JET AIRWAYS (I) LTD. (331 ITR 236) FOR THE LEGAL SUBMISSIONS THAT REASSESSMENT PROCEEDINGS WERE INITIATED UPON FORMAT ION OF BELIEF THAT THE ASSESSEE BOOKED BOGUS PURCHASE IN EXCESS OF RS .12.08 CRORES AND IT HAS INFLATED ITS INCOME AND HAS SHOWN LESS INCOM E IN THE RETURN OF INCOME. HOWEVER, ULTIMATELY THE ADDITIONS HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF UNEXPLAINED EXPENDITU RE U/S 69C ON THE ALLEGATION THAT UNEXPLAINED CASH WAS UTILIZED FOR E FFECTING PURCHASES OUTSIDE THE BOOKS OF ACCOUNT AND THEREFORE, THE ADD ITIONS AS MADE ON PEAK CREDIT BASIS WOULD BE BEYOND THE SCOPE OF REAS SESSMENT PROCEEDINGS AND HENCE, UNSUSTAINABLE IN LAW. 4.2 THE SAME WAS VEHEMENTLY CONTROVERTED BY LD. DR WHO SUBMITTED THAT THE SOLE SUBJECT MATTER OF REASSESSMENT PROCEE DINGS WAS ADDITION ON ACCOUNT OF BOGUS PURCHASES AND THE ADDITIONS ON PEAK BASIS WAS NOTHING BUT MERELY A MANNER OF COMPUTATION OF DISAL LOWANCE AND THEREFORE, THE REASSESSMENT PROCEEDINGS WERE PERFEC TLY VALID AND THE CITED DECISION WOULD HAVE NO APPLICATION ON THE FAC TS OF THE PRESENT CASE. 4.3 AT THE OUTSET, WE DEEM IT FIT TO EXTRACT THE RE ASONS RECORDED FOR REOPENING WHICH READ AS UNDER: - ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 10 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN GOLD JEWELLERY, DIAMOND JEWELLERY, SELLING IN GOLD COINS, BULLIONS. ASSESSE E HAS FILED ITS RETURN OF INCOME ON 1.10.2010 DECLARING TOTAL INCOME OF RS.1,27,27,172. A SURVEY OPERATION IN THE CASE OF ASSESSEE WAS CARRIED OUT ON 13-12-2012 BY DDIT(I NV) V(2) MUMBAI, BASED ON THE INFORMATION THAT THE ASSESSEE IS ENGAGED IN BO GUS PURCHASES FROM VARIOUS SALES TAX HAWALA PARTIES, AS A RESULT OF SURVEY, IT WAS FOUND THAT THOUGH THE COMPANY HAD A CLEARLY DEFINED PROCEDURE FOR PURCHASES, BUT THE SAME WAS VIOLATED IN CASE OF PURCHASES MADE FROM SEVERAL PARTIES NAMELY SAILEELA TRADING PVT.LT D., PRATIK ENTERPRISES, HS TRADING CO., SHRI VALLABH TRADERS. THE TOTAL PURCHASES MADE FROM THESE PARTIES WAS COMPUTED AT RS.15,47,93,006/- FOR A.Y, 2010-11 AND RS. 93,499/- FOR A.Y. 2011-12. THE ASSESSEE HAS ADMITTED RS.12,07,93,006/- FOR A .Y, 2010-11 AND RS.93,499/- FOR A.Y. 2011-12 AS UNACCOUNTED INCOME. 4. DURING THE COURSE OF THE SURVEY ON 13.12.2012 SH RI SAMIR ASHWIN SAGAR, DIRECTOR OF ASSESSEE COMPANY DEPOSED VOLUNTARILY UNDER OATH CONFIRMING THE FIGURES OF BOGUS PURCHASES BY THE ASSESSEE TOTALING TO RS.12,0 8,86,505/- FOR VARIOUS YEARS AS MENTIONED ABOVE IN ANSWER TO QUERY NO.54 IN HIS STA TEMENT. 5.THERE IS NO DOUBT WHATSOEVER THAT BY BOOKING BOGU S PURCHASE IN EXCESS OF RS.12.07 CRORE DURING THE F.Y.2009-10 AS MENTIONE D ABOVE, ASSESSEE HAS INFLATED ITS EXPENSES AND HAS SHOWN LESS INCOME IN RETURN OF INCOME. 6. IN VIEW OF THE FOREGOING DISCUSSION, I AM SATISF IED THAT IT IS A FIT CASE FOR RE-OPENING OF ASSESSMENT U/S 147 OF THE ACT AS THE INCOME CHAR GEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y. 2020-11. AFTER GOING THROUGH THE CONTENTS OF QUANTUM ASSESSM ENT ORDER VIS--VIS RECORDED REASONS, WE FIND THAT THE QUANTUM ASSESSME NT ORDER HAS NOT TRAVELLED BEYOND THE FACTS WHICH LED TO FORMATION O F BELIEF THAT CERTAIN INCOME ESCAPED IN THE HANDS OF THE ASSESSEE. AS RIG HTLY POINTED OUT BY REVENUE, THE SOLE SUBJECT MATTER OF REASSESSMENT PR OCEEDINGS WAS BOOKING OF BOGUS PURCHASES BY THE ASSESSEE AND ULTI MATELY THE ADDITIONS HAVE BEEN MADE ON ACCOUNT OF BOGUS PURCHA SES ONLY. THE DISALLOWANCE MADE U/S 69C WAS ONLY MANNER OF ARRIVI NG AT THE SAID DISALLOWANCE. 4.4 THE SUBMISSIONS OF LD. AR THAT THE REASSESSMENT PROCEEDINGS WERE TRIGGERED UPON FORMATION OF BELIEF THAT EXCESS BOGUS PURCHASES WERE TO BE DISALLOWED U/S 37(1) AS AGAINST THE FACT THAT ULTIMATELY THE ADDITIONS HAVE BEEN MADE ON ACCOUNT OF UNEXPLAINED EXPENDITURE U/S ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 11 69C WOULD NOT MATERIALLY ALTER THE BASIC FACT THAT THE REASSESSMENT PROCEEDINGS WERE TRIGGERED UPON FORMATION OF BELIEF THAT THE ASSESSEE BOOKED EXCESS PURCHASES IN THE BOOKS. IN THE ASSESS MENT ORDER, IT HAS BEEN HELD BY LD. AO THAT THE ASSESSEE MADE PURCHASE S IN CASH FROM OUTSIDE PARTIES BY UTILIZING UNDISCLOSED INCOME AND MERELY TOOK BOGUS BILLS FROM CERTAIN SUPPLIERS. FINALLY, HE MADE ADDI TIONS U/S 69C AND THE MANNER OF DISALLOWANCE ADOPTED BY LD. AO WAS PEAK C REDIT BASIS. THEREFORE, IT COULD NOT BE SAID THAT THE ADDITIONS AS MADE BY LD. AO TRAVELLED BEYOND RECORDED REASONS. AS RIGHTLY POINT ED OUT BY LD. DR, THE SOLE SUBJECT MATTER OF REASSESSMENT PROCEEDINGS WAS ALLEGATION OF BOGUS PURCHASES AND ULTIMATELY THE ADDITIONS HAVE B EEN MADE ON THAT ACCOUNT ONLY. THE LD. AR HAS ALSO RELIED ON EXPLANATION-3 TO SEC. 147 FOR THE SUBMISSIONS THAT ADDITION ON ADDITIONAL ISSUES COUL D BE MADE ONLY IF CERTAIN ADDITION WAS MADE ON ISSUE WHICH LED TO REO PENING OF THE ASSESSMENT. HOWEVER, WE DO NOT FIND ANY NEW ISSUE W HICH HAS COME TO THE NOTICE OF LD. AO DURING THE COURSE OF REASSESSM ENT PROCEEDING AND THEREFORE, THE SAID PLEA HAS TO BE REJECTED. IN OUR CONSIDERED OPINION, AT THE TIME OF FORMATION OF BELIEF, THE ONLY REQUIREMENT WOULD BE THAT THERE MUST BE CERTAIN PRIMA-FACIE MATERIAL BEFORE LD. AO WHICH WOULD SUGGEST POSSIBLE ESCAPEME NT OF INCOME. NOTHING MORE WOULD BE REQUIRED AT THAT STAGE TO REO PEN THE CASE. OF COURSE, AFTER GOING THROUGH THE FACTUAL MATRIX, IT WOULD BE OPEN FOR LD. AO TO MAKE ADDITIONS BY INVOKING ANY PARTICULAR STA TUTORY PROVISIONS WHICH WOULD BEST APPLY TO GIVEN FACTUAL MATRIX. THE REFORE, WE ARE NOT CONVINCED WITH LEGAL GROUNDS RAISED BY LD. AR AND H ENCE, DECLINE TO ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 12 ACCEPT THE SAME. THE ADDITIONAL GROUND RAISED BY TH E ASSESSEE STANDS DISMISSED. ADJUDICATION ON MERITS 5.1 SO FAR AS THE MERITS OF THE CASE ARE CONCERNED, THE CONCLUSION OF LD. CIT(A) IN REJECTING THE PLEA OF RETRACTATION OF A STATEMENT OF A PARTICULAR PERSON BY ANOTHER PERSON WOULD REQUIRE N O INTERFERENCE ON OUR PART SINCE THE RETRACTION, IN OUR OPINION, SHOULD B E BY THE SAME PARTICULAR PERSON ONLY, WHO MADE THE STATEMENT. THEREFORE, THE RETRACTION HAS RIGHTLY BEEN DISREGARDED, FOR ALL PURPOSES. 5.2 AT THE SAME TIME, ADDITIONS MERELY ON THE BASIS OF STATEMENTS MADE DURING SURVEY PROCEEDINGS U/S 133A WOULD NOT H OLD MUCH EVIDENTIARY VALUE UNLESS THE SAME WERE BACKED UP BY SOME COGENT CORROBORATIVE MATERIAL. FOR THE SAME, WE DRAW STREN GTH FROM THE DECISION OF HONBLE SUPREME COURT IN CIT V/S S.KHADER KHAN & SONS (35 TAXMANN.COM 413). WE FIND THAT THE ADDITIONS AS MADE BY LD. AO PRIMARILY STEM OUT OF THE STATEMENT MADE BY THE DIR ECTOR OF THE ASSESSEE COUPLED WITH INFORMATION FROM SALES TAX DEPARTMENT THAT THE ASSESSEE OBTAINED BOGUS PURCHASE BILLS FROM CERTAIN ENTITIES . 5.3 PROCEEDING FURTHER, IT IS NOTED THAT ADDITIONS HAVE BEEN MADE U/S 69C ON THE CONCLUSION THAT THE MATERIAL WAS PURCHAS ED IN CASH FROM MARKET BY UTILIZING UNDISCLOSED INCOME AND ACCOMMOD ATIONS BILLS WERE PROCURED FROM HAWALA PARTIES TO REGULARIZE THE SAID CASH PURCHASES. AS OBSERVED BY HONBLE DELHI HIGH COURT IN CIT V/S LUBTEC INDIA LTD. (311 ITR 175) THAT WHAT IS POSTULATED IN SECTION 69C IS THAT FIRS T OF ALL THE ASSESSEE MUST HAVE INCURRED THAT EXPENDITURE AND TH EREAFTER, IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE SOURC E OF SUCH ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 13 EXPENDITURE IS NOT FOUND SATISFACTORY BY LD. AO, TH E SAME MAY BE ADDED TO THE INCOME OF THE ASSESSEE. UNLESS THERE IS SOME THING WHICH WOULD SHOW THAT AN EXPENDITURE WAS, IN FACT, INCURRED BY THE ASSESSEE, ADDITION U/S 69C WOULD NOT BE SUSTAINABLE UNDER LAW. IN THE BACKGROUND OF STATED LEGAL PROPOSITION, IT WOULD BE PERTINENT TO NOTE TH AT PURCHASES TO THE EXTENT OF RS.1163.89 LACS WERE REVERSED BY THE ASSE SSEE IN SUBSEQUENT YEARS AND THE TRANSACTIONS OF PURCHASES AS WELL AS SALES WERE STATED TO BE MERE PAPER ENTRIES. THE STOCK THUS PURCHASED THR OUGH PAPER ENTRIES, WAS REFLECTED IN CLOSING STOCK AS ON 31/03/2010. NO DISCREPANCIES HAVE BEEN FOUND IN QUANTITATIVE DETAILS AS WELL AS STOCK REGISTER MAINTAINED BY THE ASSESSEE FOR ASSESSMENT YEAR UNDER CONSIDERATIO N AS WELL AS FOR SUBSEQUENT AY 2011-12. THE SAME IS EVIDENT FROM FIN ANCIAL STATEMENTS AS WELL AS QUANTUM ASSESSMENT ORDER FOR AY 2011-12, AS PLACED ON RECORD. FROM THE PERUSAL OF THESE DOCUMENTS, IT IS QUITE DISCERNIBLE THAT THE FIGURES OF OPENING STOCK AS WELL AS SALES IN AY 2011-12 HAS BEEN ACCEPTED WHILE FRAMING ASSESSMENT ORDER AND THESE F IGURES HAVE NOT BEEN DISTURBED. 5.4 THE AFORESAID POSITION OF CIRCULAR TRANSACTIONS HAS ALSO BEEN ACCEPTED BY LD.AO IN PARA 6.6 OF QUANTUM ASSESSMENT ORDER WHEREIN IT HAS BEEN ACCEPTED THAT THE ASSESSEE HAS MADE CIRCUL AR TRANSACTIONS TO THE EXTENT OF RS.1163.89 LACS. THE SAID FACTUAL MAT RIX HAS ALSO BEEN ELABORATED BY US IN PRECEDING PARA 2.11. THESE FACT S WOULD LEAD US TO INEVITABLE CONCLUSION THAT THE TRANSACTIONS, TO THA T EXTENT, WERE TO BE CONSIDERED AS MERE PAPER ENTRIES AND THE SAME WERE TO BE DISREGARDED WHILE MAKING THE ADDITIONS IN THE HANDS OF THE ASSE SSEE. IF THESE TRANSACTIONS WERE REMOVED FROM ASSESSEES FINANCIAL S, THERE WOULD BE ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 14 NO IMPACT ON THE PROFIT FOR THIS YEAR AS WELL AS SU BSEQUENT YEAR. THEREFORE, LD. ARS PLEA, TO THAT EXTENT, WERE TO B E ACCEPTED AND NO SUCH ADDITIONS AGAINST THESE PURCHASES WOULD BE SUS TAINABLE IN THE HANDS OF THE ASSESSEE. 5.5 SO FAR AS THE BALANCE PURCHASE OF RS.384.03 LAC S FOR THE YEAR UNDER CONSIDERATION IS CONCERNED, IT IS NOTED THAT THE ASSESSEE HAS MADE CHEQUE PAYMENT OF RS.382.72 LACS TO ONE OF THE STATED ENTITIES DURING THE YEAR AND AS PER THE STATEMENT OF THE DIR ECTOR, CASH WAS GENERATED AND THE MATERIAL WAS PURCHASED IN CASH FR OM THE OPEN MARKET. TO REGULARIZE THE CASH PURCHASES, BILLS WER E PROCURED FROM STATED ENTITIES. GOING BY THE SAME, WE ARE OF THE C ONSIDERED OPINION THAT THE ADDITIONS, WHICH WERE TO BE SUSTAINED IN THE HA NDS OF THE ASSESSEE AGAINST THESE PURCHASES, WOULD BE TO ACCOUNT FOR PR OFIT ELEMENT EMBEDDED IN SUCH PURCHASE TRANSACTIONS TO FACTORIZE FOR PROFIT EARNED BY ASSESSEE BY PROCURING GOODS FROM GREY / UNORGANIZED MARKET. THE METHOD OF PEAK CREDIT AS ADOPTED BY LD. AO WOULD NO T BE A SUITABLE METHOD UNDER THE CIRCUMSTANCES RATHER AN ADHOC ESTI MATED ADDITION WOULD MEET THE CAUSE OF JUSTICE. KEEPING IN VIEW TH E ASSESSEES NATURE OF BUSINESS, WE ESTIMATE THE ADDITIONS AT 5% OF BAL ANCE PURCHASES OF RS.3,84,03,652/- WHICH COMES TO RS.19,20,183/-. THE BALANCE ADDITION STANDS DELETED. THE METHOD OF ESTIMATION WOULD BE I N LINE WITH THE RECENT DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN PR.CIT V/S RISHABHDEV TACHNOCABLE LTD. (ITA NO. 1330 OF 2017 D ATED 10/02/2020) WHEREIN HONBLE COURT HAS APPROVED THE ESTIMATED ADDITIONS ON SIMILAR LINES, AS SUSTAINED BY TRIBUNA L. ITA NO.7301/MUM/2019 MANUBHAI GEMS PRIVATE LIMITED ASSESSMENT YEAR :2010-11 15 5.6 TO SUMMARIZE, THE ADDITION TO THE EXTENT OF RS. 19,20,183/- STAND CONFIRMED AND THE BALANCE ADDITIONS STANDS DELETED. THE OTHER RELIEF SOUGHT BY THE ASSESSEE WOULD NOT REQUIRE ANY SPECIF IC ADJUDICATION ON OUR PART. 6. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH, 2020. SD/- SD/- (AMARJIT SINGH) (MA NOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16/03/2020 SR.PS, JAISY VARGHESE ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ,-$. , . , / DR, ITAT, MUMBAI 6. -/01 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.