TMI Blog2019 (10) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. The Tribunal has confirmed the profit @ 3% on bogus purchases. We uphold the order of the Ld. CIT(A) - Decided partly in favour of assessee. - ITA No. 2793/MUM/2018, C.O. No. 121/MUM/2019 (ITA No. 2793/MUM/2018) - - - Dated:- 30-9-2019 - Shri C.N. Prasad (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the Assessee : Mr. K.A. Vaidyalingan, AR For the Revenue : Mr. Sushil Kumar Poddar, DR ORDER PER N.K. PRADHAN, AM The appeal by the Revenue and the cross objection by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-34, Mumbai and arise out of the assessment passed by the Assessing Officer (AO) u/s 143(3) of the Income Tax Act 1961, (the Act ). 2. The grounds of appeal filed by the revenue read as under: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition to 3% of the total bogus purchases of ₹ 11,17,20,486/- without appreciating that the assessee during the assessment proceedings could not establish the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jewel Diam(Surat) ABUPV3494J 1,76,36,015 5 Marc Gems CVEPS0399P 24,19,886 6 Mimixa Diam AFPRT2903F 1,73,37,030 7 Naman Exports AGWPC1001D 2,07,57,114 Total 11,17,20,486 The AO noted that during the course of search and seizure action in the case of Bhanwarlal Jain group, statements of various key personnels were recorded under oath to establish the modus operandi of the group. As per the information received from the Investigation Wing, the traders usually purchase rough diamonds from undisclosed parties in cash and require purchase bills to balance their account and to circumvent provisions of section 40A(3) of the Act or traders who tend to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Group have main business entities through which various interested parties have taken accommodation entries and one such interested party is the appellant. The A.O. has disallowed the entire purchases without questioning the sale side. If the entire purchases i.e. ₹ 11,17,20,486/- are disallowed out of a turnover of ₹ 38,28,16,417/-, it would lead to gross profit of ₹ 13,38,12,665/- which works out to an impracticable and astronomical gross profit ratio i.e. 34.95% and the net profit will be 30.67%. This is absurd for a diamond trader particularly in the background of the fact that the gross profit and net profit shown in the preceding year are very meagre which is as per the trend of the diamond industry. The gross profit and net profit margin of the earlier two assessment years along with the assessment year under appeal are given below in tabular form: Asst. Year Turnover Rs (in Crs) Gross Profit Rs. (in Crs) Net Profit Rs. (in Crs) GP% NP% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought, to tax. I accordingly direct the A.O. to disallow 3% of the purchases under reference i.e. ₹ 11,17,20,486/-over and above the income returned, in place of total purchases. This addition is clear of profit disclosed by the appellant during the year. 6. Before us, the Ld. Departmental Representative (DR) submits that in the instant case, as per the information received from the Investigation Wing, the assessee has taken accommodation entries of bogus purchases from the benami concerns of Bhanwarlal Jain group. The AO did not receive the information called for in respect of three parties in response to notice u/s 133(6) of the Act. There was no response from the said parties to the summons issued by the AO u/s 131 of the Act. Thus the Ld. DR submits that there was no material before the Ld. CIT(A) to restrict the addition to 3% of the total bogus purchases of ₹ 11,17,20,486/-. Relying on the decision in N.K. Proteins Ltd. (supra), it is submitted by him that the total purchases of ₹ 11,17,20,486/- should have been confirmed by the Ld. CIT(A). 7. On the other hand, the Ld. counsel for the assessee submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Pr. CIT v. Tejua Rohit Kumar Kapadia (T.A. No. 691 of 2017) by Gujarat High Court and the SLP filed by the revenue against this order dismissed by the Supreme Court. 8. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, there was no response to the summons issued by the AO u/s 131 of the Act to the seven parties. The purpose for issuing the summons to the said parties was to establish the genuineness of the purchases. However, we find that as recorded by the AO at para 4.6 of the assessment order, the assessee had filed copy of the ledger accounts, sample bills, bank statements reflecting the above transactions and corresponding sales were provided. In N.K. Proteins Ltd. (supra), during the course of search proceedings at the office premises of NKPL, blank signed cheque books and vouchers of number of concerns were found. Accordingly, the purchases made from these concerns were treated as bogus purchases by the AO and the entire deposits in bank accounts of these parties were treated as assessee s income on protective basis. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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