TMI Blog2019 (3) TMI 1652X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the Assessment years in appeal and direct the Assessing Officer to delete the addition/disallowance made towards non-genuine purchases. As deleted the disallowance/addition on merits the grounds raised challenging the reopening of assessment is not adjudicated. - Decided in favour of assessee. - ITA NOs. 747, 748, 749, 750, 751 & 752/MUM/2018 - - - Dated:- 13-3-2019 - Shri C.N. Prasad, Hon'ble Judicial Member Assessee by : Shri Rajesh Shah Department by : Shri Kusum Bansal ORDER C.N. Prasad (JM) 1. All these appeals are filed by the assessee against different orders of the Ld. Commissioner of Income tax (Appeals) [hereinafter in short Ld.CIT(A) ] for various Assessment Years from 2007-08 to 2013-14, in sustaining the action of the Assessing Officer in reopening the assessment made u/s. 143 r.w.s 147 of the Act, and sustaining the addition to the extent of 8% of the purchases treated as non-genuine. 2. In all these appeals assessee challenged the order of the Ld. CIT(A) in re-opening the assessment by issue of notice u/s. 148 as well as making addition towards non-genuine purchases. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Co. [328 ITR 515] 5. Coming to the merits of the case, Ld. Counsel for the assessee submits that in the course of the re-assessment proceedings notice u/s.133(6) were issued to the suppliers and the suppliers have confirmed that they have supplied materials, affidavits were filed by the suppliers confirming the supply of materials, payments were made through account payee cheques, suppliers have issued proper invoices, stocks were tallied. All this information though furnished before the Assessing Officer without making any sort of enquiry with the suppliers, merely relying on the investigation report and the statements of the persons of Bhanwarlal Jain Group came to the conclusion that assessee has received only accommodation entries from these concerns without supply of materials. Therefore, he has estimated the income element from such purchases @8%. Ld. Counsel for the assessee submits that, since the parties have confirmed by filing account confirmations and affidavits, stocks were tallied, payments were made through account payee cheques, sales were accepted, there is no justification in treating the purchases as non-genuine from these parties. 6. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee cannot be treated as non-genuine. The statements on which the Assessing Officer relied on to make the disallowance were not provided to assessee and no opportunity was given to cross examine them and this makes the assessment bad in law for violation of principles of natural justice. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE in Civil Appeal No. 4228 of 2006 dated 02.09.2015 held that when the assessment was made on the basis of the statements recorded from third parties and if those statements were not provided nor cross examination was given to the assessee, the assessment order made based on those statement is bad in law. Following the above Hon'ble Supreme Court decision, the Ahmadabad Bench of ITAT in the case of Smt. Sunita Jain Smt Rachna Sachin Jain v. ITO in ITA.No. 501 502/AHD/2016 dated 09.03.2017 quashed the assessment on identical situation. 10. Almost identical issue came up before the Division Bench in the case of M/s. Sejal Exports (India) v. DCIT in ITA.Nos. 3854, 3855, 3856, 3857, 3858, 3859 3864 /MUM/2017 dated 04.07.2018, wherein the Coordinate Bench held as under: - 13. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases [178 CTR (Raj) 420 and 186 CTR (MP) 718]. In the case of CIT v. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal.), it has been held that payment made by account payee cheque is not sacrosanct and it would not make an otherwise non-genuine transaction genuine. This view had also found favour with the Hon'ble Apex Court in the case of M/s.Kachwala Gems, as brought out in the impugned order. It is now proposed to examine whether the appellant has been able to discharge the onus of proving that the purchases amounting to ₹ 16,74,69,611/- made by it from the aforesaid 13 concerns are genuine. It is noticed from the record that the AO treated the aforesaid purchases from 13 parties as bogus or non-genuine not merely on the basis of information received from the Investigation Wing but also because the appellant failed to furnish the purchase orders, delivery challans/ angadia receipts etc. in respect of the said purchases of cut and polished diamonds. The absence of these supporting evidences lent credence to the AO's finding that the purchases shown to have been made by the appellant from aforesaid 13 concerns were nothing but accommodation entries without any actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 because the GP rate shown by the appellant was reasonable or satisfactory and had been accepted in the past. However, since the appellant had furnished copies of account confirmations, purchase invoices, etc. and quantitative details of the principal items of raw materials and finished goods in carat were available in the tax audit report, I am in agreement with the AO's finding that the cut and polished diamonds were purchased by the appellant from the grey market and to give this the colour of genuine purchases, bogus accommodation bills were obtained from aforesaid 13 concerns. It deserves to be noted that the AO had not rejected the books of account of the appellant because he had no material to doubt the genuineness of sales/ exports made by the appellant. 6.3.3 It is now well-established that in a case where the purchases have been actually made but not from the parties from whom these are claimed to have been made and instead may have been purchased from grey market without prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49,392/- as against ₹ 1,22,75,522/- worked out by the AO. Thus, the appellant gets relief of ₹ 89,26,130/- (₹ 1,22,75,522₹ 33,49,392) on this count. Ground No.3 of the present appeal is accordingly allowed to the extent indicated above. 14. On a perusal of the order of the Ld.CIT(A) and the findings thereon with reference to the submissions and evidences thereon, we find that Ld.CIT(A) completely ignored the confirmations filed by the parties in response to notices issued u/s. 133(6) of the Act by the Assessing Officer. The parties have confirmed by submitting the copy of ledger account, copy of sales bills, copy of bank statement where the payments were made through cheques and copy of Income Tax Returns reflecting the sale in their Books of Accounts. Ld.CIT(A) lost sight of these evidences which is crucial in these appeals to decide the genuineness of the purchases. When the parties confirmed that they have supplied the goods to the assessee and recorded the sales in their Books of Accounts, we fail to understand how the Ld.CIT(A) concluded that the purchases have been actually made but not from these parties but they have been made from gray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse 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, simply relying upon the information received from the DGIT(Inv.) regarding the default committed by M/s. Daksh Diamonds cannot be taken as the sole basis to treat the entire purchases made from it as bogus or non-genuine. The Assessing Officer has primarily relied on the conclusions drawn by the Investigation Wing on the basis of the statement given before the Income tax authorities and heavy reliance on such statement to treat entire purchases made from the above party as bogus, cannot be held to be justified. The information received from the DGIT(Inv.) was a piece of evidence to initiate in-depth independent investigation on the issue, which the Assessing Officer has not fully carried out. Further full enquiry on the given set of facts and circumstances and without appreciating the evidences submitted by the appellant in respect of the purchases made from the alleged bogus party has remained to be carried out before arriving at the conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, 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, 'cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from M/s. Daksh Diamonds. The disallowance of the entire amount of purchases from M/s.Daksh Diamonds would not be logical and would amount to travesty of justice. In my view either the purchases from above mentioned party are over invoiced or the purchases were actually made but not from the said party from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 17. As of now the issue of bogus purchases has been much discussed and debated by the various courts and tribunals. In many judicial pronouncements on the issue, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 held as under: - We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assesses did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT (2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. KishorAmrutlal Patel. In the result, tax appeal is dismissed. 20. In view of the facts and circumstances an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Incometax Returns filed by them, Audited Profit Loss A/c and Balance Sheets to show that the transactions of sales made to the assessee are genuine. On a careful consideration of the submissions made by the assessee, we find considerable force in the submissions not to treat the purchases made by the assessee from the parties as non-genuine/bogus. 18. The reason for treating these purchases as non-genuine /bogus is the statements given by Bhanwarlal Jain group and non-submission of delivery invoices by the assessee. It is the submission of the assessee that the statements given by Bhanwarlal Jain group have been retracted by them subsequently and there is a practice of hand delivery of such precious and light weighing materials like Diamonds is prevailing in the industry. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries. The analysis furnished before us on the Gross Profit margin shown by the assessee also suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 assessment, yet he has not specified the manner of failure. 11. On the contrary, we notice that the assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing their replies duly confirming the transactions. The AO has rejected the replies by observing that the replies lacked details and they did not mention about the nature of transactions. In our view, the said observations are vague in nature. On the contrary, a perusal of the affidavits furnished by the suppliers would show that they have confirmed the sales effected by them to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus the grounds raised by the assessee on merits are allowed. As we have allowed the appeals of the assessee on merits for the reasons and discussions made therein, the Revenue s appeals are dismissed. 11. In view of the above discussions and following the above decision, I hold that there shall not be any disallowance towards non-genuine purchases for all the Assessment years in appeal and direct the Assessing Officer to delete the addition/disallowance made towards non-genuine purchases. As I have deleted the disallowance/additi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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