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TMI Blog2019 (3) TMI 1652X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Inv.) that there was a search and seizure action in the case of Bhanwarlal Jain Group and based on the search materials and the statements of various persons in Bhanwarlal Jain Group it came to light that they have provided only accommodation entries through benami concerns, they have admitted in the statements recorded u/s. 132(4) that they have only provided bogus entries and therefore based on this information the Assessing Officer observing that the list of beneficiaries of accommodation entries pertains to the assessee and therefore he believed that income chargeable to tax had escaped assessment. 4. The Ld. Counsel for the assessee submitted that, there is no independent recording of satisfaction by the Assessing Officer and he has simply relied on the investigation report and the statements of Bhanwarlal Jain Group that they have provided accommodation entries and assessee has obtained entries from those concerns without making any enquiry and recording any independent satisfaction that the income had escaped assessment. Ld. Counsel for the assessee further referring to Page No. 16 of the Paper Book which is the letter dated 24.02.2015 issued by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as non-genuine. Reliance is placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. 7. Ld. Counsel for the assessee further submitted that, assessee was not provided with the statements of the persons deposed from Bhanwarlal Jain Group that no supplies have been made to the assessee though asked for. In the absence of providing statements and providing cross examination the statements cannot be used against the assessee for treating the supplies as non-genuine. 8. Ld. DR vehemently supported the orders of the Authorities below. In so far as the re-opening of assessment is concerned, Ld. DR submits that the search by investigation authorities is subsequent event which came to light that the assessee obtained only accommodation entries from Bhanwarlal Jain Group companies and therefore the Assessing Officer has rightly re-opened the assessment. Coming to the merits of the case Ld. DR submits that the assessee has not proved that the stocks were tallied and in fact there were no stocks found and thus lower authorities have rightly estimated the profit element @8% as the assessee has obtained onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received from DGIT(Investigation), Mumbai that assessee was one of the beneficiaries of bogus purchase bills issued by the companies which were maintained by Bhanwarlal Jain Group as there was search in the case of Bhanwarlal Jain Group. The Revenue came to know that the Bhanwarlal Jain Group was issuing the accommodation entries to various parties through different entities. Assessee submitted copies of invoices, ledger confirmations, bank statements etc., and contended that the purchases are genuine. However, the Assessing Officer rejecting the explanations and submissions of the assessee and ignoring the evidences furnished in the form of invoices, ledger confirmation, bank statements estimated the profit element in the purchases at the rate at which the assessee has declared the Gross Profit for the relevant Assessment Year and the Gross Profit rate stood at about 7% in all Assessment Years. 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 prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns were having common addresses, as brought out in the table below: - Sr.No. Name Address 1. Ankita Exports, 3-M, Ambika Darshan, Moti Kadia Sheri, Saiyadpura, Surat - 395 003 Milan & Co. Parvati Exports 2 Laxmi Diamond 204, Vaibhav Chamber, Rughnathpura Main Road, Surat - 395 003 Marvin Enterprise Prime Star 3. Mukti Exports 407, Devratna Apartment, Rampure Main Road, Surat - 395 003 Mohit Enterprises Pakanj Exports Pushpak Gems Rajan Diamonds It is also noticed that the invoices of almost all 13 concerns were prepared on the computer in the same format having the same font type as well as (font) size. It is pertinent to mention that while 1% VAT 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted material and rate of purchase of accounted for goods due to various factors such as saving on account of sales-tax and other taxes and duties leviable in respect of manufacture or sale of goods in question and substantial saving in the income-tax to suppliers in respect of income from sale of unaccounted goods etc. In these circumstances, the diamonds in the grey market are always cheaper than the diamonds sourced from the genuine dealer, because there is an element of discount in case of instant cash purchase. Therefore, the AO has correctly concluded that an addition is required to be made in case of the appellant so as to bring to tax the profit element embedded in such purchases. 6.3.4 Coming now to the 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 buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. In this case the assessments were reopened based on the information from the DGIT(Investigations), Mumbai that assessee is a beneficiary from the entities operated by Shri Bhanwarlal Jain wherein the search took place and it was found that Shri Bhanwarlal Jain is providing only accommodation entries and there were no actual sale transactions. Assessing Officer observed that the assessee could not prove the movement of goods from the suppliers to the assessee. In the absence of delivery challans and based on the statements of Bhanwarlal Jain that they have provided only accommodation bills, the Assessing Officer has concluded that the assessee has obtained only bogus bills and assessee might have purchased goods in gray market. The Assessing Officer estimated the Gross Profit Margin on such purchases at 12.5% for the Assessment Years 2012-13 and 201314. For the Assessment Year 2011-12 the entire purchases were treated as nongenuine. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court of Bombay in the case of CIT v. NikunjEximp Enterprises (P.) Ltd., is very relevant, wherein it was held that - "When the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assesses. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them." 16. The facts and circumstances as outlined above, clearly suggest that the purchases by the appellant from M/s.Daksh Diamonds cannot be doubted but a major flaw in these transactions 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 necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s.Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @ 12.5% is applied on such total alleged bogus purchases amounting to Rs. 1,05,18,970/-, the additional gross profit on such purchases would come to Rs. 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 Rs. 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 agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It is also the submission of the assessee that none of the impugned parties have been declared as Hawala dealers or suspicious dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of the statement given by the Bhanwarlal Jain group. The assessee has furnished all necessary evidence to prove the genuineness of the purchases, the parties have also responded to the notices u/s. 133(6) of the Act by filing necessary evidence as to prove that the purchases are genuine. Thus the assessee discharged the onus to prove the genuineness of the transactions made by the assessee from the impugned parties. The Assessing Officer completely failed to make further enquiries in these cases. The documents furnished by the supplier 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 det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents. 12. In view of the foregoing discussions, we are of the view that the assessee has duly discharged the burden to prove the genuineness of purchases. On the contrary, the AO has simply relied upon the report given by the investigation wing. In this view of the matter, we are of the view that no addition is called for on account of alleged bogus purchases. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition." 20. In view of what is discussed above, we are of the view that the assessee has duly discharged its burden of proving the genuineness of the purchases and the Assessing 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 disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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