TMI Blog2020 (7) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... ged bogus purchases to settle dispute between the parties in respect of purchases from all parties. - ITA No.5958/Mum/2018 And ITA No.6325/Mum/2018 - - - Dated:- 18-6-2020 - Shri Mahavir Singh, Vice President And Shri G. Manjunatha, Accountant Member For the Assessee : Shri Rahul Sarda, AR For the Revenue : Ms. Samatha Mullamudi, DR ORDER PER BENCH: These cross appeals filed by the assessee, as well as the revenue are directed against order of the Ld. Commissioner of Income tax (Appeals)-30, Mumbai, dated 08/08/2018 for the Asst.Year 2010-11. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed-off by this consolidated order. 2. The assessee has raised the following grounds of appeal: 1. The CIT (Appeals) has erred by treating 3% of the alleged bogus purchases amounting to ₹ 5,97,06,315/- and disallowing the same and adding it to the taxable income of your appellant. 3. The revenue has raised the following grounds of appeal: 1. Whether on the facts and in the circumstances of the cases and in law, the Ld.CIT(A) was justified in restricting the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has been reproduced at para 4 on pages 3 to 5 of Ld.CIT(A). The sum and substance of arguments of the assessee before the Ld.CIT(A) are that purchase from those parties are genuine in nature, which are supported by necessary evidences, the assessee has filed all details including purchase bills and proof of payment against said purchases by account pay cheques. The Ld.CIT(A) after considering relevant submissions of the assessee and also, by relied upon certain judicial precedents, including the decision of Hon ble Gujarat High court, in the case of Simith P.Sheth (2013) 35 taxmann.com 385 has scaled down additions made by the Ld. AO towards alleged bogus purchase to 3% profit on total purchase from those parties. The relevant findings of the Ld.CIT(A) are as under:- 6.10 In this case, I find that quantitative details were maintained, Ld. AO not doubted the genuineness of sales estimated the profit @100% on the total purchases made from the concerns of shri Bhanwarlal Jain by recording a finding that the appellant made the purchases from some other party. Thus, the issue would boil down to finding out what is the correct element of profit embedded in bogus purchases whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits element embedded in such purchases could be added to the assessee s income and as such no question of law arose in such estimation. The Triubnal for arriving the profit embedded in the transactions @12.5% held as under:- Having heard the submissions of both sides, we have been informed that the malpractice of bogus purchase is mainly to save 10% sales tax et. It has also been informed that in this industry about 2.5% is the profit margin. Therefore, respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowances is required to be sustained at 12.5% of the purchase from those parties. With these directions, we hereby decide the ground of the rival parties which are partly allowed. 6.12 As narrated earlier, the Ld. AO in this case has himself held that the purchases were not bogus though the party from whom the purchases were made by the appellant was found to be bogus and that is the reason for which AO considered the addition on the basis of the profit element embedded on such purchases which is estimated @100% of the total purchases. The motive behind obtaining bogus bills thus, appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat High court adopted the profit @12.5% by taking the benefit derived out of the saving of taxes, considering the profit margin in that line of trade. In the light of the above, one has to see in the present case, who are in the manufacturing and trading of diamonds, the profit element embedded estimation @100% is correct or not. Coming to the profit margin in the trade, the taskforce group for diamond industry constituted by the Government of India, Ministry of Commerce and Industry, after considering the BAP scheme, recommended presumptive tax for net profit calculated @2% of trading activity and 3% for manufacturing activity or @2.5% across the board. It is also ascertained that the operation profit in case of diamond trading for computation of ALP by the TP wing is consistently in the region of around 1.75% to 3%. It is also brought to my notice that the AOs are also adopting 3% on the purchases made from Shri Bhanwarlal Jain group concerns, as the profit element embedded, in the subsequent assessments finalized on the similar set of facts. In view of the same and also since the profit margin is lesser in this sector, adopting 100% by the AO, is not based on correct footing. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other circumstantial evidence says otherwise. At the same time, the Ld. AO had also failed to take the investigation to a logical conclusion by carrying out necessary enquires, but he solely relied upon information received from investigation wing, which was further supported by search and seizure operations in the case of Bhanwarlal Jain group. The AO neither pointed out any discrepancies in books of accounts nor made out a case of sales outside books of accounts. In fact, the AO did not disputed sales declared for the year. Under these circumstances, it is difficult to accept arguments of both the sides. Further, in a case where purchases are considered to be purchased from suspicious/hawala dealers, various High Courts and Tribunals had considered an identical issue in light of investigation carried out by the Sales Tax Department and held that in case of purchases claims to have made from alleged hawala dealers, only profit element embedded in those purchases needs to be taxed, but not total purchase from those parties. The Hon ble Gujarat High Court, in the case of CIT vs Simith P.Sheth 356 ITR 451 had considered a similar issue and held that at the time of estimation of prof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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