TMI Blog2018 (8) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... tries to various parties through different entities. - Held that:- statements reflecting payments made by the assessee to them, copy of acknowledgment of Income Tax Returns filed by them to show that the transaction of sales made to the assessee are genuine. We also find that the Gross Profit margin shown by the assessee is ranging in between 7.02% to 7.62% consistently. Further, the disallowance / estimation of profit of purchases by treating them as bogus cannot be made only on the statements recorded from third parties, especially when the suppliers have responded to the notice u/s. 133(6) of the Act and filed all the necessary documents to prove the genuineness of the purchases made by the assessee. - All the purchases are genuine - No adition can be made - Decided in favor of assessee. - ITA.No. 3854, 3855, 3856, 3857, 3858, 3859 & 3864 /MUM/2017, ITA.No. 4685, 4686, 4687, 4688, 4689, 4690 & 4691/MUM/2017, ITA.No. 3865, 3866, 3867, 3868, 3669 & 3870/MUM/2017, ITA.No. 4692, 4693, 4694, 4695 & 4696/MUM/2017 And ITA.No. 3871/MUM/2017 - - - Dated:- 4-7-2018 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER For The Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. Ld. DR submitted that the name of the assessee firm was found in the information provided by the DGIT(Investigation) as one of the beneficiaries of such accommodation bills provided by Bhanwarlal Jain Group. Therefore, it was contended that, there was a specific information on record to suggest that the income had escaped assessment as the assessee obtained bogus bills from Bhanwarlal Jain Group companies. It was submitted that in view of this information the Assessing Officer has reason to believe that the income had escaped assessment and has rightly reopened the assessment. Ld. DR strongly placed reliance on the findings of the Ld.CIT(A) in sustaining the reopening of assessment. 5. We have heard the rival submissions, perused the orders of the authorities below. No doubt the assessments were reopened beyond four years but the reopening was made based on a concrete information which has come on record subsequent to completion of assessments u/s. 143(3) / 143(1) of the Act. When there is a specific and concrete information available with the Assessing Officer after completion of assessment, there is certainly reason to believe that the income had escaped assessment and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. ITO 236 ITR 34(SC)]. Therefore, having received the said information from the Investigation Wing of the Department, no independent enquiry or verification was required to be undertaken by the AO before arriving at the prima facie conclusion that income chargeable to tax had escaped assessment in the hands of the appellant. 4.3.2 It appears that in the absence of this information, the issue of verification of genuineness of purchases made from the said 13 parties escaped the attention of the AO while making the earlier assessments first u/s.143(3) and later u/s.143(3) r.w.s.153A of the Act on 07.12.2009 and 28.02.2011 respectively. There is nothing to indicate that any query was raised or any information was sought by the then AOs in regard to the purchases made from said 13 parties during the course of assessment. In other words, the issue was not under consideration at all in the course of said assessments. When the matter was not examined by the AO in such assessments, the appellant cannot say that reopening is an attempt to review or reinvestigate the same or that it amounts to change of opinion. In this connection, reliance is placed on judicial precedents in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rements of the first proviso to section 147 were fully satisfied in the present case. In view of the above discussion, I do not find any error or infirmity in the action of the AO in reopening the assessment of the appellant for the A.Y. under consideration based on the above information received from the Investigation Wing and proceeding to reassess the income escaping assessment on this count. Ground No.1 taken up by the appellant is thus found to be devoid of merit and is accordingly dismissed. 6. In view of the findings of the lower authorities that the assessments of the assessee were reopened based on material unearthed in the course of search in Bhanwarlal Jain Group and Assessing Officer had reason to believe that the income had escaped assessment, we sustain the reopening of assessments and reject this ground of appeal of the assessee. 7. Coming to the additions made towards bogus purchases, Learned Counsel for the assessee submitted that assessee has submitted the copies of invoices, ledger confirmation, bank statements, where the payments were made through cheques. It is submitted that assessee is also maintaining the stock details/stock records and therefore th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the purpose of Delivery challan and the goods are being received by the staff. Ld. Counsel for the assessee further submits that the nature of goods does not require weighment slips since cut and polished diamond are weighed in house and goods received are entered in the stock register and quality is being checked at the time of purchase of goods itself. The receipt of goods is supported by stock register maintained by assessee. 9. Learned Counsel for the assessee submitted that, assessee is maintaining complete stock register of all transactions relating to purchase and export sale and one can know easily where these purchases are exported. Ld. Counsel for the assessee further submitted that, it is quite important to note that without purchase how the export of goods could be completed. All the goods are being checked by the Custom authority at the time of exports. Many times these purchases are being financed by bank under Packing credit loan facility. Learned Counsel for the assessee submitted that goods purchased are covered under block insurance taken by the assessee. In support of producing these parties, assessee submitted the confirmation of these parties confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On appeal the Ld.CIT(A) considering the submissions of the assessee and evidences on record concluded that the purchases have been actually made but not from whom these are claimed to have been made and instead they have been purchased from gray market without proper billing or documentation. Therefore, only the profit element embedded therein needs to be brought to tax. He concluded that the profit element estimated by the Assessing Officer at around 7.33% which is the Gross Profit declared by the assessee for the Assessment Year 2007-08 is excessive and unreasonable. He considered fair and reasonable to estimate the profit margin embedded in such purchases @2% observing as under: - 6.3.1. I have considered the submissions of the appellant and perused the materials available on record including the judicial decisions relied upon by the appellant. The point for determination is whether the AO is justified in making addition of ₹ 1,22,75,522/- on account of element of extra profit of 7.33% embedded in the purchases made from the aforesaid 13 concerns. At the outset, it is proposed to take note of couple of judicial precedents having bearing on the issue under adjudication. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is leviable on such transactions in Mumbai/ Maharashtra, the diamond sector in Surat/Gujarat is exempted from payment of VAT. Thus, there is a saving of 1% VAT involved in procuring (accommodation) purchase bills of cut and polished diamonds from parties like the aforesaid concerns based in Surat. I am unable to accept the appellant's plea that there is nothing in support of cash purchases of goods from the grey market, because these transactions take place in secret and no direct evidence in this regard is generally available. It is well-established that such matters have to be considered in the light of surrounding circumstances, normal course of human conduct and preponderance of probabilities. However, it is pertinent to mention that the fact that the appellant was one of the beneficiaries of the accommodation entries obtained from entry providers operating in Mumbai came to light only during the course of search and seizure actions carried out in the case of Shri Bhanwarlal Jain Group. The purchases of cut and polished diamonds shown to have been made from aforesaid 13 parties cannot be regarded as genuine merely because the appellant was not related to the suppliers or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e estimation of profit margin @7.33% by the AO in the present case, I find merit in the appellant's plea that the extra profit of 7.33% estimated by the AO is excessive and unreasonable. This is so because the AO has not given any basis or justification for adopting the profit element at 7.33%. In this connection, it is pertinent to note that purchase of cut and polished diamonds from open market is made mainly to save 1% VAT levied thereon and in addition, the buyer gets the benefit of lower rate/cash discount. In these circumstances, the addition of extra profit @7.33% of purchases from aforesaid concerns cannot at all be said to be justified. In view of this position, it is considered fair and reasonable to estimate the profit margin embedded in such purchases at 2% of the purchase value recorded in the books of account. Since the appellant has shown purchases to the tune of ₹ 16,74,69,611/-, the profit element involved therein @2% of the purchase value will come to ₹ 33,49,392/- as against ₹ 1,22,75,522/- worked out by the AO. Thus, the appellant gets relief of ₹ 89,26,130/- (Rs.1,22,75,522-Rs.33,49,392) on this count. Ground No.3 of the present appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer estimated the Gross Profit Margin on such purchases at 12.5% for the Assessment Years 2012-13 and 2013-14. For the Assessment Year 2011-12 the entire purchases were treated as non-genuine. The Ld.CIT(A) taking note of the submissions of the assessee as well as the averments of the Assessing Officer and various case laws estimated the profit element from these purchases at 12.5% for all the Assessment Years 2011-12 to 2013-14. The Ld.CIT(A) in his order observed as under: 11. I have carefully gone through the assessment order passed by the Assessing Officer and the written submissions of the appellant on the issue. I have also considered various case laws relied upon by the appellant. My observations are as under. 12. The AO has formed his view about the bogus nature of the purchase made by the appellant from M/s.Daksh Diamonds on the basis of various incriminating. documents and evidences seized during the course of search seizure action in the case of Bhanwarlal Jain Group, which has established that the said group was engaged in providing accommodation entries of bogus sales/purchases/loans to various beneficiaries. 13. In my opinion, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address. Thus the purchase prices shown on the invoices are not subjected to verification and as such it was difficult to establish the correctness of the purchase prices paid for the materials purchased from them. Such verification of the sale price shown on the invoices/bills was necessary to ascertain the correctness of the profits shown by the appellant for the period under consideration. This verification was also vital to determine as to whether the purchase prices shown on the bills/invoices, are as per prevailing market prices of the materials purchased and to ascertain that the price paid for the materials purchased from M/s.Daksh Diamonds is not over invoiced. In the absence of any such verification of the correctness of the price paid for the materials purchased by the appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from M/s.Daksh Diamonds. In view of the same, the possibility of over-invoicing of the materials purchased to reduce the profit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee s theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. (Emphasis supplied) 19. Similarly while dealing with an identical issue, in the case of CIT v. Bholanath Poly Fab (Purchase) ltd. ITA.No.No. 63 of 2012, in the order dated 23/10/2012, the Hon'ble High Court of Gujarat has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1,05,18,970/-, the additional gross profit on such purchases would come to ₹ 13,14,871/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and the balance addition made amounting to ₹ 92,04,099/-is hereby deleted. The Assessing Officer is directed accordingly. Hence, grounds no. 1 2 are partly allowed. 17. As could be seen from the above the Ld.CIT(A) did not agree with the Assessing Officer that the purchases by the assessee are bogus/non-genuine. However, the Ld.CIT(A) observed that purchases made cannot be doubted and there is a major flaw in these transactions is the unverifiable nature of transactions as the parities are not found available in the given address. However, we see that the parties have responded in these cases for the notices issued u/s. 133(6) of the Act, they have filed Ledger Account of the assessee in their books of accounts, Copies of Sales Invoices issued by them, their Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns filed by them, Audited Profit Loss A/c and Balance Sheets to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plier of the goods have not been disproved by the Assessing Officer in these matters. 19. We also find that the Coordinate Bench in the case of Indo Unique Trading Pvt Ltd. v. DCIT in ITA.No. 6341/Mum/2016 considered almost an identical situation wherein the suppliers have responded to the notices issued u/s. 133(6) of the Act and confirmed the transaction by filing various details before the Assessing Officer, in such circumstances the Coordinate Bench accepted the contentions of the assessee that the purchases cannot be treated as bogus simply relying on the statements in the case of Bhanwarlal Jain group. While holding so the Coordinate Bench observed as under: - 10. We have heard rival contentions and perused the record. We notice that the assessing officer has reopened the assessment for the second time after expiry of four years from the end of the assessment year, on the basis of information received from the investigation wing about the bogus nature of transactions entered by Shri Bhanwarlal Jain group. Even though the AO has mentioned the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer without making proper investigation, simple relied on the statements of third party to treat the purchases as bogus. Assessing Officer could not prove that the information furnished by the suppliers are not genuine so as to treat the sales made by them are only bogus. In the circumstances, we set aside the orders of the lower authorities and delete the disallowance made towards bogus purchases for all these Assessment Years i.e. 2011-12 to 2013-14 which are under appeal before us. 16. As could be seen from the above, the facts in the case of the assessee and also the decision referred to above are almost identical. The parties have confirmed by filing replies to notices u/s. 133(6) of the Act along with the ledger account of the assessee in their Books of Accounts, copies of sales invoices issued by them to the assessee, thereby statements reflecting payments made by the assessee to them, copy of acknowledgment of Income Tax Returns filed by them to show that the transaction of sales made to the assessee are genuine. We also find that the Gross Profit margin shown by the assessee is ranging in between 7.02% to 7.62% consistently. Further, the disallowance / estimatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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