ITO 19 (1)(3), MUMBAI V. GOYAM JEWELS, MUMBAI

MA 149/MUM/2024

AI Insights

The case involves the Income Tax Department's appeal against M/s. Goyam Jewels concerning the disallowance of purchases deemed non-genuine, linked to the Bhanwarlal group, known for organized tax evasion. The Tribunal had previously reduced the addition made on account of these purchases to 3% of the gross profit rate, following the CIT (A)'s decision. The Revenue's argument for a higher addition based on a new CBDT circular was dismissed by the Tribunal, which found that the case did not meet the exceptional circumstances outlined in the circular for bypassing the low tax effect rule.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26570 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Laws Referred To: CBDT circular No. 17/2019, CBDT circular No. 5/2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KUMAR AMBASTHA
• Keywords: Bogus purchase; Tax effect; Search and seizure; Audit objection; Bogus

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘G’ BENCH MUMBAI BEFORE: SHRI B R BASKARAN , ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER MA No.149/Mum/2024 (Arising out of ITA No.5740/Mum/2018) (Assessment Year :2008-09) ITO 19(1)(1), Mumbai Vs. M/s. Goyam Jewels 18, 3rd Floor Fatima Manzil 216, Ram Mohan Road Mumbai – 400 004 PAN/GIR No.AAFFG2610K (Appellant) .. (Respondent) Assessee by None Revenue by Shri Ashok Kumar Ambastha Date of Hearing 26/07/2024 Date of Pronouncement 30/01/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid Miscellaneous Application has been filed against order dated 05/01/2024 passed by the Tribunal in MA No.2/Mum/2022. Thus, the present Miscellaneous Application has been filed against Miscellaneous Application disposed by the Tribunal earlier. 2. In the said Miscellaneous Application, the Revenue has stated as under:- MA No.149/Mum/2024 M/s. Goyam Jewels 2 “The Hon'ble ITAT has dismissed the MA filed by the department for the reason that the issue does not fall under the exception clause (e) of para 10 of the CBDT circular No. 17/2019 dated 08.08.2019, however the issue of non-genuine purchases made by assessee with Bhanwarlal group of cases (involved in organized tax evasion) fall under exceptional clause (h) of Para 3.1 of the of the latest circular no. 5/2024 dated 15.03.2024.\" 3. Precisely on the same issue Revenue has filed an earlier Miscellaneous Application which Tribunal has disposed of holding as under:- “2. We find that the Revenue has challenged the order of ld. CIT (A) restricting the addition made on account of bogus purchases to the extent of 3% of the gross profit rate and addition made on account of purchases by the ld. AO of Rs.1,38,07,296/- for making 100% disallowance of purchases has been reduced to 3% holding that the profit element embedded in the alleged bogus purchase was alone be added. The ld. CIT (A) has followed the decision of Tribunal in assessee’s own case for A.Y.2007-08. Though the appeal of the department has been dismissed on account of low tax effect in view of CBDT Circular 17/2019 dated 08/08/2019, however, the department is now contenting that in view of exception provided in the CBDT Circular vide para 10, the appeal could not have been dismissed on account of low tax effect. Here in this case, the ld. AO based on search and seizure action conducted by the Department on Shri Bhanwarlal Jain and his group concern on 03/10/2013 held that assessee made purchases from the concerns of Shri Bhanwarlal Jain are not genuine who were the hawala entities in the following manner:- 3. Name of the hawala parties Amounts (in Rs.) Kothari & Co. 73,50,408/- Minal Gems 27,21,554/- Mouli Gems 37,35,334/- Total 1,38,07,296/- MA No.149/Mum/2024 M/s. Goyam Jewels 3 Accordingly, assessee’s case was reopened u/s.147. Thereafter, the ld. AO after detailed discussion has held that these purchases are non-genuine and the entire purchases have been disallowed. 4. The ld. CIT (A) after relying upon various decisions has held that profit element embedded in purchases and restricted the addition applying the profit rate of 3%. Such a decision was based on earlier precedence and various decisions that only gross profit element can be added in case of disallowance of purchases. 5. First of all the case of the assessee was not reopened or addition was made on the basis of any information received from any external sources. The said clause of CBDT Circular reads as under:- 10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect: (a) Where the Constitutional validity of the provisions of an Act or Rule is under challenge, or (b) Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or (c) Where Revenue Audit objection in the case has been accepted by the Department, or (d) Where addition relates to undisclosed foreign income/ undisclosed foreign assets (including financial assets)/ undisclosed foreign bank account. (e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI/ ED/ DRI/SFIO Directorate General of GST Intelligence (DGGI). (f) Cases where prosecution has been filed by the Department and is pending in the Court. 5. Here in this case, the reopening and the addition on account of bogus purchases has been made on the basis of search conducted by the Income Tax department i.e. DGIT (Investigation) Mumbai and not through some external sources MA No.149/Mum/2024 M/s. Goyam Jewels 4 of any law enforcement agencies. There is no whisper in the assessment order that addition is based on any information received from external sources in the nature of law enforcement agencies such as CBI/ ED/ DRI/SFIO Directorate General of GST Intelligence (DGGI). Here the addition is based on the basis of search conducted by the Investigation wing of the Income Tax Department on a third party from where inference has been drawn. Thus, it does not fall within the exception provided in the aforesaid clause (e) of para 10 of CBDT circular as stated by the Revenue in the Miscellaneous Application. Accordingly ITAT was correct in applying the Circular on low Tax affect. 4. Since, already same issue has been decided by the Tribunal in the earlier Miscellaneous Application, therefore, the present Miscellaneous Application filed by the Revenue is dismissed. 5. In the result, Miscellaneous Application of Revenue is dismissed. Order pronounced on 30th January,2025. Sd/- (B R BASKARAN) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 30/01/2025 KARUNA, sr.ps Copy of the Order forwarded to : MA No.149/Mum/2024 M/s. Goyam Jewels 5 BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "