SAWANSUKHA JEWELLERS PRIVATE LIMITED,KOLKATA V. ACIT, CIRCLE 7.1, KOLKATA, KOLKATA

CO 32/KOL/2024

AI Insights

The case involves Sawansukha Jewellers Private Limited, which faced scrutiny over alleged bogus purchases amounting to INR 2,20,05,564 from two companies, Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. The Assessing Officer (AO) treated these purchases as bogus based on investigations that revealed these companies were involved in providing accommodation entries. The Tribunal examined the evidence provided by the assessee, including bank statements and stock registers, and noted that the sales from these purchases were accepted as genuine. The Tribunal concluded that the addition of 12% on these purchases was unjustified and directed its removal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 41151 (ITAT-KOLKATA)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-03-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Other Referred Cases: ACIT Vs. Urgaya Foods and Fees Private Limited, New India Construction Co. Vs. ITO, M/s Diagnostics Vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KAPIL MONDAL
• Assessee Lawyers: AKKAL DUDHWEWALA
• Keywords: Set aside; Question of law; Unexplained expenditure; Bogus purchase; Accommodation entries; Bogus
• Section: 147; 148; 143(3); 142(1); 143(2); 153; 133(6); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1615/KOL/2024 (Assessment Year:2018-19) ACIT, Circle-7(1), 5th Floor, Aaykar Bhavan, P-7, Chowringhee Square, Kolkata-700069, West Bengal Vs. SawansukhaJewellers Private Limited 4th Floor, 9, Camac Street, Kolkata-700017, West Bengal (Appellant) (Respondent) PAN No. AAFCS2477R Co No. 32/KOL/2024 (Airing out of the ITA No. 1615/KOL/2024 for A.Y. 2018-19) SawansukhaJewellers Private Limited 4th Floor, 9, Camac Street, Kolkata-700017, West Bengal Vs. ACIT, Circle-7(1), 5th Floor, Aaykar Bhavan, P-7, Chowringhee Square, Kolkata-700069, West Bengal (Appellant) (Respondent) Assessee by : Shri Akkal Dudhwewala, AR Revenue by : Shri Kapil Mondal, DR Date of hearing: 03.03.2025 Date of pronouncement : 17.03.2025 O R D E R Per Rajesh Kumar, AM: The appeal of the Revenue and CO of the Assessee are arising out against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 18.06.2024 for the AY 2018-19. Page | 2 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 02. At the time of hearing, the ld. Counsel for the assessee in cross objection pressed ground no.2, which is against the part confirmation of addition to the tune of ₹26,40,668/- being 12% of the total bogus purchases by the ld. CIT (A) by ignoring the fact that all these purchases were supported with the relevant evidences and the rate applied by the ld. CIT (A) is imaginary and hypothetical. 03. The facts in brief are that the assessee filed the return of income on 30.10.2008, declaring total income at ₹29,74,75,300/-. The case of the assessee was selected for scrutiny u/s 143 of the Act and accordingly, the assessment was framed by assessing the total income at ₹29,76,02,380/- u/s 143(3) of the Act. Thereafter, the ld. AO received information form Director of Income Tax (Systems), CBDT in accordance with the risk management strategy formulated by the Board as per the provisions of clause (1) of Explanation 1 to Section 148 of the Income-tax Act, 1961 (the Act), which revealed that the assessee had entered into transactions with two parties namely Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. ltd. of ₹1,09,32,273/- and ₹1,10,73,291/- respectively, aggregating to ₹2,20,05,564/-. Accordingly, the case of the assessee was reopened and notice u/s 148 o the Act was issued on 31.03.2022, which were complied with by the assessee by filing the return of income on 28.04.2022, declaring the same income as declared in the original return of income. Thereafter, the ld. AO after referring to the investigation wing search/ investigation, on the suspicious transactions between Bhanwar L. Gurjar, Prop of M/s Kakoda International and M/s Tanman Jewels Pvt. ltd. treated the purchases as bogus. The ld. AO noted that the investigation wing observed during the course of investigation that these transactions made for the purpose of layering of funds. It was further revealed that office of the said concern was closed and no Page | 3 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 business activity was being done in the premises for the last five to six years. Thereafter, the ld. AO after citing the investigation wing report noted that the Tanman Jewels Pvt. ltd. is a shell company and accordingly, sale made by the Tanman Jewels Pvt. Ltd. were considered as bogus sales. Consequently, the corresponding purchases made by the assessee at ₹1,09,32,273/- was also considered as bogus. Similarly, in the case of Saffron Gems Pvt. ltd. , the AO noted that as per the information uploaded in the insight portal the purchases made by the assessee from the said company were non-genuine as the said entity itself is engaged in providing accommodation entries. The ld. AO noted on the basis of said observations that the income to the tune of ₹2,20,05,564/- has escaped assessment. During the course of assessment proceeding, the ld. AO issued noticed u/s 142(1) of the Act along with questionnaires on two occasions calling for the details/ evidences from the assessee which were duly provided and furnished. The ld. AO also in order to verify the transactions independently issued notices u/s 133(6) of the Act to the said parties. The case was also referred to the verification unit for physical verification of the addresses of the sellers and accordingly, the unit submitted its report after making physical enquiries in case of Tanman Jewels Pvt. ltd. stating that the premises were locked as the party was not available on the given address. The notice u/s 133(6) of the Act could not be served in the case of Tanman Jewels Pvt. ltd. whereas in the case of Saffron Gems Pvt. ltd., it was noted that the complex in which the said supplier was operating was closed. Accordingly, the assessee was given show cause notice on 15.03.2023 to establish the identity of sellers their capacity and genuineness of the transactions along with supported evidences. The assessee vide letter dated 18.03.2023, stated that it had already Page | 4 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 provided the details of purchases of material along with supporting materials such as copies of returns of the sellers along with copy of ledger account and confirmation, balance sheets, quantitative details of purchase materials, copies of bank statement, copy of stock register, screen shot of GST return, etc. Thereafter, the ld. AO rejected the contentions of the assessee and treated the purchase made by the said concerns as bogus and unexplained expenditure u/s 69C of the Act and added to the income of the Assessee. 04. In the appellate proceedings, the ld. CIT (A) while partly sustaining the addition directed the ld. AO to assess the income at the rate of 12% of the total bogus purchases by observing and holding as under:- “4.1 Appeal Notices were issued to the assessee on 28.02.2024, 12.04.2024, 15.05.2024 fixing the case for 06.03.2024, 29.04.2024, 30.05.2024 respectively. The assessee has filed written submission and relevant documents on 06.03.2024, 14.05.2024 and 29.05.2024. 4.2 I have gone through the assessment the assessment of assessment order and record available. The assessee filed its income tax return for A.Y, 2018-19 on 30.10.2018, declaring a total income of Rs 29,74,75,300/-, The assessment order under section 143(3) was passed, assessing the total income at Rs 29,76,02,380/-. Based on information flagged by the Directorate of Income Tax (Systems) and the risk management strategy of the CBDT, a notice under section 148 was issued on 31.03.2022. It was revealed that the assessee engaged in purchase transactions with two parties, Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd., totaling Rs 2,20,05,564/-. These transactions were flagged as potentially non-genuine. The assessee complied with the notice under section 148 by filing the return of income. Subsequent notices under sections 143(2) and 142(1) were issued, and the assessee responded accordingly. Investigation by the Income Tax Department, Surat, revealed that Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. were shell companies engaged in bogus transactions. The physical verification of their premises indicated no business activities conducted for several years. Financial analysis further supported the suspicion of bogus transactions. The assessee provided details of purchases, copies of returns of income of seller parties, bank statements, and stock registers. However, the investigating authority deemed these submissions insufficient to prove the genuineness of the transactions. Considering the investigation findings and the inadequacy of the assessee's submissions, the assessing officer treated the purchases from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. as bogus purchases. These were added as unexplained expenditure under section 69C read with section 115BBE. The total income was computed at Rs 31,96,08,034/-, includingthe income as per the original assessment order and the addition of unexplained expenditure. The assessment Page | 5 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 proceedings resulted in the addition of potentially non-genuine purchases to the total income of the assessee. 4.3 I have gone through the assessment order and record available. In the instant case, the assessments was reopened under Section 147 of the Income Tax Act, 1961, because the assessee was alleged to have received accommodation entries from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. These dealers were purportedly providing accommodation entries without the actual business of goods. During the reassessment process, the assessee was required to validate the purchases made from these vendors. The AO classified the purchases as non-genuine because the business premises of the above mentioned sellers were found closed by department with no business activity, and the parties remained untraceable for service of notice u/s 133(6). The AO added Rs 2,20,05,564/- as unexplained expenditure under section 69C read with section 115BBE on the non-genuine nature of the purchases. In my view, given that sales were accepted as genuine by AO, it could be concluded that the above purchases could not be treated as non-genuine. Hence, there should be a reasonable estimation of the profit element from these purchases. Although, the appellant has given the copies of bank accounts showing payment and receipts but has failed to prove that the above said entities from where the purchases have been made actually did not physically existed. No document with relation to them has been submitted. Since the assessee could not conclusively prove that the purchases were actually made from the genuine parties, a profit element at 12% may be charged by AO from these purchases. The disallowance of purchases is to be restricted to 12%, and the income to be computed accordingly. The assessee failed to present the vendors for verification. A reasonable estimation of the profit element due to the inability to conclusively prove the parties as genuine is seemed appropriate on the facts of the case. 5. As a result, the appeal of the assessee is partly allowed.” 05. After hearing the rival contentions and perusing the materials available on record, we find that in this case, the assessee has furnished all the information/ details along with the supplies received, evidencing the receipt of materials from the said suppliers for which the assessee has filed the copies of bills, vouchers, bank statements, confirmations from the parties and stock register etc. The assessee has also produced stock tally evidencing the movement of stocks, the books of accounts were duly audited by tax auditor with no adverse inference was drawn. We even note that in the original assessment proceedings which culminated u/s 143(3) of the Act, these purchases Page | 6 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 were accepted after verification. The AO has only acted on the basis of information received on the director of investigation( system) CBDT, wherein it was found that when these two suppliers namely Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. ltd. were engaged in issuing accommodation entries in the form of bogus purchase bills. We note that the assessee has furnished all the details/ evidences qua these supplies/purchases which are available form page no.91 to 109. Moreover, the ld. CIT (A) in the appellate proceedings has noted that the addition made by the ld. AO was solely on the ground that the business premises of the above sellers was found to be closed with no business activity and further held that when sales were accepted as genuine how the purchase could be treated as non-genuine. The ld. CIT (A) to this extent as given a correct finding of facts based on the facts available and after examining the evidences filed by the assessee, however directed the ld. AO to apply 12% on these purchases for assessment of income which is apparently appears to be incorrect and against the facts on record. 06. We note that in this case, the assessee is a very big jeweler, who has declared income of ₹29,76,02,380/- during the year and each and every item of purchases were meticulously recorded in the book of accounts as well as in stock register. Thereafter, the movement of stocks were also recorded minutely with all details and descriptions and finally, recording the sales made against the said purchases. In other words, the direct stock tally is available in the stock register of the assessee. Besides the payments were made through banking channels and it was not the allegation that the cash was introduced before the payments made for the purchases. Therefore we are in a position to subscribe to the conclusion drawn by the ld. CIT (A) of partly sustaining the addition to the extent of 12% of the so-called Page | 7 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 bogus purchases, especially when the sales were accepted by both the authorities below. Even GST authorities have not made any adverse inference qua these purchases by the assessee from these parties. Considering all these facts and circumstances, we are not in a position to sustain the addition. The case of the assessee find support from the decisions of the co-ordinate Bench in case of ACIT Vs. Urgaya Foods and Fees Private Limited in ITA No. 1116/KOL/2024 for A.Y. 2021-22 vide order dated 15.01.2025, New India Construction Co. Vs. ITO in ITA No. 827 & 828/KO/2023 for A.Y. 2013-14 & 2014-15 vide order dated 12th October, 2023 & the Hon'ble Calcutta High Court decision in the case of M/s Diagnostics Vs. CIT in ITA No. 153 of 2004 vide order dated 4th March, 2011. For the sake of ready reference, the operative part of the decision in the case of M/s Diagnostics (supra) is extracted below:- “It appears from record that a Division Bench of this Court, at the time of admission of the appeal, formulated the following substantial question of law: \"i) Whether on the facts and in the circumstances of the case the Learned Tribunal was right in law in holding that genuine purchasefrom M/a. SelvasPhotographics, M/s. Soma Enterprises and M/s Imprint's-N-Trade were bogus when on the contrary the relevant documents and/or evidence in support of the said transactions and the existence of the parties were made available before the same and whether the said arbitrary confirmation and/or addition of amounts of Rs. 3,12,302/-, Rs. 50,675/- and Rs. 1,00,737/- respectively is perverse? ii) \"Whether on the facts and in the circumstances of the case the learned Tribunal could ignore the order of the Commissioner of Income Tax (Appeals) which was order impugned before the Learned Tribunal and which contained the necessary details about the genuineness of the transaction of the petitioner and whether such total go-by of the order of the Commissioner of Income Tax (Appeals) and on the contrary confirmation of the order of the Assessing Officer was perverse?\" After hearing Mr. Sen, the learned advocate appearing on behalf of the appellant, and Mr. Agarwal, the learned advocate appearing on behalf of the Revenue and after going through the materials on record, we agree with the Tribunal below that so far as the purchases from M/s. Soma Enterprises and M/s. Imprint's-N-Trade were concerned, the alleged payments being made in cash and the amount involved being Page | 8 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 Rs.50,675/- and Rs. 1,00,737/- respectively during the relevant Assessment Year and at the same time, the appellant having failed to produce any of the aforesaid parties except the bills alleged to be raisedby those two concerns, the Tribunal below was justified in disbelieving those transactions and we do not find any reason to interfere with such finding which is basically a finding of fact based on appreciation of material evidence. However, as regards the payments made to M/s. Selvas Photographics are concerned amounting to Rs.3,12,302/-, we find that those have been made by account payee cheques and those have been encashed through the bankers of M/s. Selvas Photographics. It appears that according to the appellant, at the time of assessment, the appellant had no business transaction with M/s. Selvas Photographics and consequently, the said party did not co-operate with the Assessing Officer. However, the transaction having taken place through account payee cheques, we are unable to accept the contention of Mr. Agarwal, the learned advocate appearing for the Revenue that the transaction was a non-existent one. If an assessee took care to purchase materials for his business by way of account payee cheques from a third party and subsequently, three years after the purchase, the said third party does not appear before the Assessing Officer pursuant to the notice or even has stopped business, the claim of the assessee on that account cannot be discarded as non-existent. In the case before us, the Revenue has not put forward any other ground, such as, it was not a genuine transaction for other reasons but has simply rejected the claim on the ground as if there was no such transaction. The transaction having taken place through payment by account payee cheques, such plea is not tenable and in such circumstances, the Tribunal below erred in law in reversing the finding arrived at by the Commissioner of Income-tax (Appeal) accepting the said transaction as a genuine transaction. We, therefore, set aside the order of the Tribunal below only in respect of the deletion of the amount of Rs.3,12,302/- paid to M/s. SelvasPhotographics by account payee cheques and direct the Assessing Officer to deduct the said amount as business expenditure of the appellant. We, thus, answer the two questions in favour of assessee only in respect of Rs.3,12,302/ but affirm the order of the Tribunal in respect of other two payments allegedly made to M/s. Soma Enterprises and M/s. Imprint's-N-Trade. The appeal is, thus, disposed off in terms of the aforesaid order.” 07. Considering these facts of the assessee’s case in the light of the above decision, we are inclined to set aside the finding of the ld. CIT (A) with regard to sustaining of addition to the tune of 12% and direct the ld. AO to delete the addition. Accordingly, the cross objection raised in ground no.2 is allowed. Page | 9 ITA No. 1615/KOL/2024 & CO 32/KOL/2024 SawansukhaJewellers Private Limited; A.Y. 2018-19 08. Since, we have already allowed the cross objection raised by the assessee, the appeal of the revenue become infructuous and hence, dismissed. 09. In the result, CO of the assessee is allowed and the appeal of the Revenue is dismissed. Order pronounced in the open court on 17.03.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 17.03.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "