DHADDDA GEMS LTD, MUMBAI V. ITO 5(1)(3), MUMBAI

ITA 7310/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0787 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PURUSHOTTAM KUMAR SR
• Keywords: Bogus purchase; Search and seizure; Accommodation entries
• Section: 131

Judgement Text

1 DHADDA GEMS LTD IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A.NO.7310/MUM/2016 - AY 2008-09 I.T.A.NO.7311/MUM/2016 - AY 2010-11 I.T.A.NO.7312/MUM/2016 - AY 2011-12 I.T.A.NO.7313/MUM/2016 - AY 2012-13 I.T.A.NO.7314/MUM/2016 - AY 2013-14 M/S DHADDA GEMS LTD 2208, PANCHRATNA OPERA HOUSE, MUMBAI-4 ITO 5(1)(3), MUMBAI PAN : AABCD2150N APPELLANT RESPONDENT APPELLANT BY SHRI VIMAL PUNMIYA RESPONDENT BY SHRI PURUSHOTTAM KUMAR (SR AR) DATE OF HEARING 20.4.2017 DATE OF ORDER 19.05.2017 O R D E R PER ASHWANI TANEJA, AM:- THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE FOR D IFFERENT YEARS INVOLVING IDENTICAL ISSUES PERTAINING TO SAME ASSES SEE; THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2 DHADDA GEMS LTD 2. FIRST, WE SHALL TAKE UP APPEAL FOR AY 2008-09 FILED BY ASSESSEE AGAINST THE COMMON ORDER PASSED BY COMMISSIONER OF INCOME-TAX ( APPEALS)-10, MUMBAI [HEREINAFTER CALLED CIT(A)] DATED 28-09-2016 FOR AY S 2008-09, 2010-11, 2011- 12, 2012-13, 2013-14 PASSED AGAINST THE ASSESSMENT ORDERS PASSED U/S 143(3), ALL 29-01-2016, FILED ON THE FOLLOWING GROUNDS:- ADDITION ON THE POINT OF BOGUS PURCHASES OF RS.11,66,646/- THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN RESTRICTING THE ADDITION ON THE POINT OF BOGUS PURCHASES TO 8% OF TOTAL PURCHASE AMOUNTING TO RS.1,45,82,956/- I.E. RS.11,6 6,636/- INSTEAD OF DELETING IT IN TOTO. HENCE WE REQUEST Y OUR HONOUR TO DELETE THE ADDITION AND OBLIGES. 3. THE BRIEF BACKGROUND OF THE CASE IS THAT DURING THE YEAR THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF TRADING IN D IAMONDS. THE AO REOPENED THE CASE ON THE BASIS OF AN INTIMATION REC EIVED FROM THE OFFICE OF THE COMMISSIONER OF INCOME-TAX WHEREIN IT WAS INFORMED THAT ASSESSEE COMPANY HAD DONE TRANSACTIONS OF BOGUS PURCHASES FROM M/S S UN DIAM AGGREGATING TO RS.58,47,496. ACCORDINGLY, THE CASE OF THE ASSESSE E WAS REOPENED U/S 147. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO INFORMED THE ASSESSEE THAT THERE ARE PURCHASES FROM VARIOUS OTHER PARTIES ALSO WHICH WERE CONTROLLED AND MANAGED BY ONE MR. RAJENDRA JAIN IN WHOSE CASE SEARCH AND SEIZURE ACTION WAS CARRIED OUT BY THE INVESTIGATION WING OF THE DE PARTMENT AND HIS STATEMENT WAS RECORDED U/S 131 OF THE INCOME-TAX ACT IN WHICH IT WAS ADMITTED THAT HE WAS INVOLVED IN THE ACTIVITIES OF PROVIDING ACCOMMO DATION ENTRIES THROUGH VARIOUS CONCERNS. IN RESPONSE, DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT PURCHASES MADE BY THE A SSESSEE WERE GENUINE AND IN SUPPORT OF ITS CLAIM, THE ASSESSEE SUBMITTED DET AILS OF PURCHASES AND CORRESPONDING SALES OF THE GOODS PURCHASED, COPIES OF BILLS, INVOICES, OTHER 3 DHADDA GEMS LTD EVIDENCES AND STOCK REGISTER ALSO SHOWING QUANTITAT IVE RECONCILIATION OF GOODS PURCHASED AND SOLD. IT WAS SUBMITTED BY THE ASSESSE E BEFORE THE AO THAT THOUGH THE PURCHASES WERE NOT BOGUS BUT WITH A VIEW TO CURTAIL THE LITIGATION THE AO CAN MAKE AN ADDITION WHICH MAY BE RESTRICTED TO 8 % OF THE PURCHASES SHOWN FROM THE IMPUGNED PARTIES. RESULTANTLY, THOUG H, THE AO AGREED WITH THE OFFER OF THE ASSESSEE IN PRINCIPLE, BUT WITH REGARD TO THE RATE OF ADDITION, THE AO INCREASED IT TO 12.5% OF BOGUS PURCHASES. ACCORD INGLY IN THE ASSESSMENT ORDER, ADDITION WAS MADE @ 12.5% OF THE ALLEGED BOG US PURCHASES OF RS.1,45,82,956/- WHICH WORKED ABOUT TO RS.18,22,870 /-. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE C IT(A) WHEREIN DETAILED SUBMISSION WERE MADE. IT WAS SUBMITTED THAT COMPLET E DETAILED AND EVIDENCES WERE FURNISHED TO SHOW THAT PURCHASES WERE GENUINE. IT WAS ALSO SUBMITTED THAT THE STATEMENT MADE BY MR. RAJENDRA JAIN WAS MA DE UNDER PRESSURE AND THEREFORE, THE SAME WAS SUBSEQUENTLY RETRACTED. HOW EVER, LD. CIT(A) DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE FULLY ON THE GROUND THAT ASSESSEE HAD HIMSELF MADE THE OFFER TO MAKE ADDITION OF THE PROFIT ELEMENT EMBEDDED IN THE AMOUNT OF BOGUS PURCHASES. BUT HE REDUCED TH E RATE OF ADDITION FROM 12.5% TO 8%. AND THUS GAVE PART RELIEF BY OBSERVIN G AS UNDER: AS THERE IS STRENGTH IN THE ARGUMENTS OF BOTH THE S IDES, AS THE ISSUE OF ACCOMMODATION ENTRIES IS A REALITY, TO ARREST SU CH RAMPANT MALPRACTICES A RESTRAINT IS ALWAYS INEVITABLE AS WE CANNOT ENCOU RAGE SUCH MALPRACTICE OF OBTAINING ACCOMMODATION ENTRIES TO AVOID THE IMP ACT OF LEVIES AND DEFRAUDING REVENUE. WE CAN FIND SUCH A RESTRAINT AD VISED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SETH (SUP RA) WITHOUT WHICH AVOIDING PAYMENT OF LEVIES AND DEFRAUDING REVENUE W ILL CONTINUE UNABATED. HOWEVER, IN THE PRESENT CASE THE DECISION OF SIMIT P SETH IS NOT APPLICABLE IN A CASH-IRON STRAIGHT-JACKET WAY EXCEP T THE THEORY OF RESTRAINT LAID DOWN BY THEM SINCE THE NATURE OF BUSINESS IN T HE CASE BEFORE THEM WAS DIFFERENT FROM THE PRESENT CASE. THEREFORE, 12. 5% GP CANNOT BE ADOPTED IN THE PRESENT CASE WHICH IS INTO DIAMOND B USINESS. SINCE THE 4 DHADDA GEMS LTD APPELLANT ITSELF HAS AGREED BEFORE THE AO TO ADOPT 8% AS GP INSTEAD OF 12.5% AS PROPOSED BY HIM DURING THE COURSE OF ASSES SMENT PROCEEDINGS, I FIND IT APPROPRIATE TO ACCEPT THE PROPOSAL OF THE A PPELLANT AT THE RATE OF 8% FOR ALL THE YEARS UNDER CONSIDERATION. THE AO IS DI RECTED ACCORDINGLY. IN VIEW OF THIS THE GROUND IS PARTLY ALLOWED. 5. STILL NOT SATISFIED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE TRIBUNAL. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE AS SESSEE VEHEMENTLY CONTESTED THE ADDITION MADE IN THE HANDS OF THE ASS ESSEE. IT WAS SUBMITTED BY HIM THAT OFFER TO MAKE ADDITION GIVEN TO AO WAS UND ER EXTREME CIRCUMSTANCES DUE TO UNDUE PRESSURE FELT BY THE ASSESSEE AND WAS MADE ONLY TO REDUCE LITIGATION. HOWEVER, THE PURCHASES ARE GENUINE. IN SUPPORT OF HIS CLAIM DETAILED SUBMISSIONS WERE MADE BY HIM AND BRIEF NOT ES WERE ALSO SUBMITTED. THE ARGUMENTS WERE MADE BY HIM IN SUPPORT OF HIS CL AIM THAT PURCHASES ARE GENUINE CAN BE SUMMARIZED AS UNDER: 1. ASSES SEE HAS ALL BILLS OF PURCHASES. 2. ALL PAYMENT MADE THOUGHT ACCOUNT PAYEE CHEQUE. 3. SUPPLIER PROVIDED ALL IDENTITY TO BANK FOLLOWING KY C NORMS. 4. ASSESSEE HAS STOCK REGISTER AND ALL QUANTITY IS REC ORDED IN STOCK REGISTER. 5. ALL SALES OF ASSESSEE WERE ACCEPTED. 6. WITHOUT PURCHASES SALES CANNOT TAKE PLACE. 7. ASSESSEE ACCOUNTS DULY AUDITED BY TAX AUDITOR AS WE LL STATUTORY AUDIT AS WELL VAT AUDITOR. 8. THE STATEMENT GIVEN BY RAJENDRA JAIN HAS BEEN RETRA CTED BY HIM. 9. THERE IS NO EVIDENCE THAN CASH RECEIVED BACK BY ASS ESSEE. 10. ASSESSING OFFICER MADE ALLEGATION THAT ASSESSEE RED UCED TRUE PROFIT THOUGH ALLEGED PURCHASES. IF THE ASSESS ING OFFICER CONTENTION IS ACCEPTED THAN IT WILL BE LEAD UNEXPEC TED OP WHICH 5 DHADDA GEMS LTD WILL BE UNPRACTICAL. 11. ASSESSING OFFICER RELIED ON MERELY ON STATEMENT OF RAJENDRA JAIN WHICH IS ALREADY RETRACTED BY HIM. 12. SAMPLE OF BILLS PAYMENT THOUGHT BANKING CHANNELS. BILL AT PAGE 54 AND PAYMENT AT PAGE 71 BILL AT PAGE 48 AND PAYMENT AT PAGE 69 IN SUPPORT OF AFORESAID ARGUMENTS, LD. COUNSEL RELI ED UPON VARIOUS JUDGMENTS WHEREIN IT WAS HELD THAT NO ADDITION COUL D BE MADE SOLELY ON THE BASIS OF THIRD PARTYS STATEMENT. 6. IN ADDITION TO THE ABOVE, THE LD. COUNSEL MADE AN A LTERNATIVE SUBMISSION THAT IN CASE ADDITION WAS TO BE SUSTAINE D ON THE BASIS OF OFFER MADE BY THE ASSESSEE, THEN THE ADDITION SHOULD BE C OMPUTED IN A FAIR AND JUSTIFIED MANNER. THE ASSESSEE HAD PROPOSED TO MAKE ADDITION @ OF 8%; HOWEVER, THE PROFIT ALREADY DISCLOSED BY THE ASSESS EE SHOULD BE REDUCED THEREFROM. IN SUPPORT OF JUSTIFICATION OF THIS CONT ENTION, HE RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF SRI MADHUKA NT GANDHI V. ITO (1950/M/2009) FOR AY 2005-06, DATED 23/2/2010. IT W AS SUBMITTED THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LD . CIT(A) @ 8% HAS LED TO EXORBITANT AMOUNT OF PROFIT WHICH IS NOT POSSIBL E IN THIS LINE OF BUSINESS. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY , THE ADDITION SHOULD BE COMPUTED IN FAIR AND JUSTIFIED MANNER. 7. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF LOWER AUTHORITIES AND REQUESTED FOR UPHOLDING THE ORDER OF LD. CIT(A). 8. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AND ORDERS OF THE LOWER AUTHORITIES AND ALSO SUBMISSION S MADE BY BOTH THE SIDES BEFORE US. IT IS NOTED THAT IN THIS CASE, THE ASSESSEE HIMSELF HAS 6 DHADDA GEMS LTD OFFERED THE ADDITION TO BE MADE KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE. HOWEVER, THE ALTERNATIVE PRAYER BEFORE US IS THAT THE ADDITION SHOULD BE COMPUTED IN FAIR AND JU STIFIED MANNER. THEREFORE, AFTER TAKING INTO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE FIRST PRAYER OF THE ASSESSEE CANNOT BE ACCEPTED AND THUS THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASE S CANNOT BE DELETED FULLY. NEXT QUESTION THAT ARISES BEFORE US IS THAT HOW MUCH ADDITION SHOULD BE MADE. LD. CIT(A) HAS SUSTAINED THE ADDITION @ 8% THE REVENUE IS NOT IN APPEAL BEFORE US. THEREFORE, THE ADDITION IS SUSTAI NED AT 8% AS HAS BEEN DONE BY LD. CIT(A). HOWEVER, THE ONLY GRIEVANCE OF THE ASSESSEE WHICH IS NOW LEFT IS THAT THE AMOUNT OF PROFIT WHICH IS ALRE ADY DISCLOSED BY THE ASSESSEE SHOULD BE DEDUCTED; OTHERWISE IT WILL LEAD TO EXCESSIVE ADDITION. WE HAVE CAREFULLY CONSIDERED IN THE FACTS OF THIS C ASE AND FIND THAT THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE DEMAND THAT PROPORTIONATE AMOUNT OF GROSS PROFIT ALREADY DISCLOSED BY THE ASS ESSEE CORRESPONDING TO THE AMOUNT OF BOGUS PURCHASES SHOULD BE DEDUCTED FR OM THE ADDITION MADE. THE ASSESSEE EMPHATICALLY STATED BEFORE US TH AT IF THIS ISSUE IS SENT BACK TO THE FILE OF THE AO THEN, THE ASSESSEE SHALL BE ABLE TO MATCH THE AMOUNT OF THE SALES WITH THE CORRESPONDING AMOUNT O F ALLEGED BOGUS PURCHASES AND THEREFORE THE EXACT AMOUNT OF PROFIT DISCLOSED ON THESE PURCHASES CAN BE FACTUALLY WORKED OUT. THIS ISSUE I S ACCORDINGLY SENT BACK TO THE FILE OF THE AO WHERE THE ASSESSEE SHALL SUBM IT REQUISITE DETAILS AND EVIDENCES TO SHOW THE CORRESPONDING AMOUNTS OF SALE S AGAINST THE IMPUGNED BOGUS PURCHASES AND THEN THE AMOUNT OF ADD ITION SUSTAINED @ 8% BY THE LD. CIT(A) SHALL BE FURTHER REDUCED BY TH E AMOUNT OF GROSS PROFIT ACTUALLY SHOWN ON THESE PURCHASES. THE ADDITION SHA LL BE SUSTAINED ON THE BALANCE AMOUNT. THE AO SHALL GIVE ADEQUATE OPPORTUN ITY TO THE ASSESSEE 7 DHADDA GEMS LTD BEFORE DECIDING THIS GROUND AFRESH. THUS, ASSESSEE WOULD GET PART RELIEF. THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTIC AL PURPOSES. 9. IT HAS BEEN JOINTLY STATED BY BOTH THE PARTIES THAT THE FACTS INVOLVED IN OTHER APPEALS I.E. FOR AY 2010-11 (ITA NO.7311/M /16), AY 2011-12 (ITA NO. 7312/M/16), AY 2012-13 (ITA NO. 7313/M/16) AND AY 2013-14 (ITA NO. 7314/M/16) INVOLVE IDENTICAL FACTS AND CIRCUMST ANCES. THEREFORE, FOLLOWING THE DIRECTIONS FOR AY 2008-09, THE GROUND S RAISED IN THESE APPEALS MAY ALSO BE TREATED AS ALLOWED FOR STATISTI CAL PURPOSE. THE AO IS DIRECTED TO FOLLOW OUR ORDER FOR AY 2008-09. 10. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESS EE ARE TREATED AS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF THE HEARING IN THE PRESENCE OF REPRESENTATIVES OF BOTH THE PART IES. SD/- SD/- (SAKTIJIT DEY) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 19.05.2017 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , D, BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES