TMI Blog2022 (7) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... any enquiry or sent notice u/s 133(6). Once the assessee had filed all the details of purchases, stock register and corresponding sales and the entire transaction are through banking channel and there is no discrepancy found either in the quantity of purchases or sales, then the addition on some hypothetical working peak investment as done by him cannot be sustained. The same is directed to be deleted. Otherwise also, the aforesaid addition is not based on any incriminating documents or material found during the course of search, albeit is has been made on the basis of search conducted after more than 2 years in case of different persons and based on certain information received on 24.03.2014, i.e., in respect of transaction of Rajendra Jain Group of companies. AO has sought to make the impugned addition which cannot be held to be on the basis of any seized or incriminating material found during the course of search of the assessee. Accordingly, the same is outside purview and the addition made u/s 153A is unabated assessment. Thus, on this ground also, the addition cannot be sustained. Disallowance made to the labour contractor - As documents corroborate that these labour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al advice is immaterial. If there was a proper agreement of retainership for legal advice and for statutory compliances is given to certain professionals for rendering legal services and they have raised the bills and are completely unrelated parties, then disallowance cannot be made on the ground that assessee had not proved any rendering of any legal advice. Assessee has already explained the above reason as to why assessee had sought their engagement. Therefore, such addition is directed to be deleted. Assessee appeal allowed. - I.T.A. No. 3675, 3676, 3677 And 3678/Mum/2018 - - - Dated:- 14-7-2022 - Shri Amit Shukla, JM And Shri Gagan Goyal, AM For the Appellant : Shri Nitesh Joshi And Shri P. P. Bhandari, Ld. ARs For the Respondent : Shri R. M. Madhvi, Ld. DR ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeals have been filed by the assessee against the separate impugned order of even date 26.03.2018, passed by Ld. CIT (Appeals)-50, Mumbai for the quantum of assessment passed u/s 143(3) r.w.s. 153A for the AYs 2006-07, 2007-08,200809 2009-10. 2. Since the grounds raised as well as issues involved in all the appeals are common and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) to hold that these are accommodation entries. 5. The brief facts of the case are that, Assessee Company is engaged in the business of manufacturing and exporting of rough and polished diamond. The return of income for AY 2006-07 was filed on 30.11.2006, declaring total income of Rs. 33,04,50,393/-. Thereafter the assessment was completed u/s 143(3) assessing the total income of Rs. 38,65,85,460/-. Against the said order, assessee has filed the appeal before Ld. CIT(A) who granted part relief; and thereafter, both the parties had filed the appeal before the Tribunal which has been disposed of vide order dated 30.07.2010. 6. Thereafter, a search and seizure action was carried out u/s 132 on 25.08.2011 at the residence of the Directors and business premises of Assessee Company. Consequently, notice u/s 153A was issued on 11.12.2012 and in response, assessee has filed the return of income on 31.01.2013 declaring total income of Rs. 33,25,00,166/-. 7. The additions which has been challenged before us is with regard to unapproved purchases based on peak calculation of Rs. 33,56,044/-; and addition of Rs. 2,73,76,892/- being payment to three labour contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty did not respond to the said notice. He then asked the assessee to establish the genuineness of the payment made for the purchases. In response, assessee filed a detail reply which has been incorporated at page no. 9 10 of assessment order, same are reproduced as under:- 'Rosy Blue India Pvt. Ltd is engaged in the business of cutting and polishing rough diamonds and export of cut and polished diamonds. We are the sight holder of diamond Trading Co Ltd UK since 1979. We have our own manufacturing facilities at Kandivali, Mumbai and at Indore, MP. In addition to this we have a team of freelance artisans doing cutting and polishing of rough diamonds mainly for our company. Our turn over is in the range of 2,500 Crores to 3,000 Crores comprising mainly of exports all over the world. In order to meet market requirements we do purchase cut and polished diamonds from local market. These purchases are mainly carried through brokers. We confirm that we had purchased cut and polished diamonds from the parties listed in your above referred notice. All transactions with these parties are genuine and cannot be alleged as bogus mere on the statement of a person. We are not aware unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchases together with details of each payment mad against these purchases is enclosed which is self explanatory.' 12. Ld. AO despite noting that assessee is maintaining day to day stock register and all invoices of purchases and sales are recorded, however since parties are non-existent, therefore these are not genuine purchase. He held that assessee might have taken accommodation entries from the bogus parties wherein goods have not been received from the parties from whom it has shown purchased and assessee has not produced any material to substantiate the same, therefore, it is not verifiable. After referring various judgments, he held that additions should be made in respect of peak amount of investment made out of accounted money by the assessee for purchase of the material from the bogus parties. The peak calculation was made on the following basis:- a) Cash has been paid on date on which the bogus purchase bill has been entered in the books of accounts; b) Cash has been received back by the assessee on the date on which the cheque has been issued by it to bogus parties. c) Ledger accounts of all the above mentioned hawala parties have been merged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to him returned Unserved . The assessee company had not made any transaction with Yash Enterprises, Divya Enterprises, Om Sai Enterprises, Shree Sai Baba Enterprises and S.V. Diamonds. The following payments have been made to the other three proprietary firms on account of labour charges:- Sr. No. Name. of the Party A.Y. Amount (In Rs.) 1. Kamal Diamonds 2006-07 1,18,15,767/- 2. S.R. Diamonds 2006-07 24,77,128/- 3. Vishala Diamonds 2006-07 1,30,83,997/- Total 2,73,76,892/- Thus, Ld. AO held that assessee has not discharge his onus and accordingly, disallowed the claim of disallowance of Rs. 2,73,76,892/-. 14. Ld. CIT (A) has confirmed the addition as made by the AO on both counts. 15. Before us, Ld. Counsel for the assessee submitted that assessee is engaged in the business of procuring rough diamonds mainly from abroad, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of labour charges after deduction of TDS to the bank account of the labour contractor and based on the cheque of the labour contractor, amounts would be transferred from his account directly to the employees account by the bank. Therefore, there was no involvement of cash at any stage and this is also not the case of the Revenue. Neither there is any dispute on the availing of services through the labour contractor nor has the Revenue alleged at any point of time that the payments from the said bank account were not made to the employee's account. The services of the said labour contractors had been discontinued from 2005-06 i.e., more than five years before the date of search. The aforesaid documents remained in the premises after the discontinuation of the arrangement with the aforesaid parties without any one paying any attention to the same. They were of no relevance after the discontinuance of the arrangement. For a material or information to be regarded as incriminating, he submitted that, it should divulge information which was earlier not available and may have the effect of increasing the income. In the present case, it is not in dispute that the Assessee has engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 221 to 222 355 Income-tax return of Labour Contractor 144 216 to 219 310 to 335 18. Ld. Counsel further submitted that the above referred information shows that the concerned labour contractors existed during the relevant period and they have provided the necessary services to the Assessee. Since the business with the aforesaid labour contractors have been discontinued from Financial Year 2005-06, their non-appearance before the AO after a period of 8 years thereafter should not lead to any adverse inference being drawn against the Assessee. The discontinuance of the said labour contractor is before the date of search and is independent of the same. 19. With regard to unapproved purchases, Ld Counsel submitted that assessee had purchased diamonds from Vitrag Jewels of Rs. 33,56,044/-. This is out of total purchases made during the year of Rs. 704,80,98,296/-. The said purchases are duly supported by purchase invoices (see page 137). Corresponding Export Sales has been accepted. Bank Statement evidencing Payment to said Vitrag Jewels is also at Page 140. On 03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof, even on merits the said addition is not justified. 23. He further submitted that, assuming without admitting that the aforesaid submissions of the Assessee is not accepted by the Tribunal, then, the Assessee submits that the Tribunal in its case for assessment year 2013-14, has held that the addition on this issue should be restricted to 2.5% of the amount of purchases. 24. On the other hand, Ld. DR strongly relied on the observation made by AO and Ld. CIT(A) and submitted that, once the AO has made inquiry u/s 133(6) and none of the parties have responded or assessee could not produce these parties before the AO, then the addition /disallowance made by AO is justified in law. 25. We have heard both the parties and perused the relevant findings given in the impugned order as well as material placed on record. In so far as addition on account of unapproved purchases, it has been brought on record that only purchase which is in dispute is purchases made from Vitrag Jewels of Rs. 33,56,044/-, out of total purchases made during the year of Rs. 704.80 crores. Rest of the parties mentioned in the assessment order, no such purchases has been made, nor has been found from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .03.2014, i.e., in respect of transaction of Rajendra Jain Group of companies. AO has sought to make the impugned addition which cannot be held to be on the basis of any seized or incriminating material found during the course of search of the assessee. Accordingly, the same is outside purview and the addition made u/s 153A is unabated assessment. In view of the judgment of Hon ble Jurisdictional High Court in the case of Murli Agro Products Ltd vs. CIT 49 Taxmann.com 172 and CIT vs. All Cargo Global Logistics Ltd. 374 ITR 645. Thus, on this ground also, the addition cannot be sustained. 27. In so far as disallowance made to the labour contractor, the assessee company which is engaged in the business of procuring rough diamond from abroad, cutting and polishing it and then exporting the same. For cutting and polishing, the assessee company engaged the labours through various contractors which work from the assessee s premises. The total payment made during the year is more than 45.28 crores. Out of this, the AO has doubted the payment made to three parties (as mentioned in earlier paragraph) aggregating to Rs. 2,73,76,892/-. Before us, Ld. Counsel demonstrated that the labour ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities and had complied with labour laws including payment of statutory dues such as PF and ESIC: Kamal Diamond; 1. Payroll Register for February 2006 2. Duly acknowledged letters intimating concerned authorities regarding fulfilment of compliances under respective laws and closure of business: a. Letter dated 11-08-2006 filed with Labour Commissioner b. Letter dated 22-05-2006 filed with Director of Factories, c. Letter dated 12-06-2006 filed with Regional Director, ESIC d. Letter dated 10-06-2006 filed with Labour Welfare Fund e. Letter dated 07-03-2007 filed with Asst. Provident Fund Commissioner 3. Letter filed by the appellant dated 03-08-2006 intimating labour authorities for termination of labour contractors and cancellation of registration obtained under labour laws 4. Profession Tax challans paid during FY 2005-06 5. Profession Tax Assessment Order dated 18-05-2007 (Form VI) for FY 2003-04 to FY 2005-06 accepting the returns filed by the company and cancelling the registration Vishala Diamond: 1. Payroll Register for February 2006 2. Duly acknowledged letters intimating concerned authorities reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following grounds:- 1. The learned Commissioner of Income-tax (Appeals) erred in upholding the additions aggregating to Rs. 34,10,797/- made on account of legal and professional fees and Bogus Purchases in the assessment proceedings under section 153A of the Act. It is submitted that the Appellant had been assessed for the year under consideration and that no proceedings were pending as on the date of search. No addition can be made to the assessed income other than the income determined on the basis of incriminating documents/evidence found during the course of search. Impugned addition made in the proceedings under section 153A of the Act is without jurisdiction and bad in law. 2. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance out of Legal Professional fees paid to Mr. Shreenijin P.V. amounting to Rs. 9,00,000/- and Ms. Soni K.B. amounting to Rs. 9,00,000/- both aggregating to Rs. 18,00,000/- for the services availed. It is submitted that the expenditure is incurred wholly and exclusively for the purpose of business of the appellant as such no disallowance is called for. 3. The appellant reserves the right to add to, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on account of purchase of Rs. 40,18,254/- for AY 2007-08 and Rs. 6,27,385/- for AY 2008-09. Thereafter, Ld. CIT(A) has restricted the disallowance to 5% on amount of bogus purchases at Rs. 1,25,47,703/-. In both the assessment years, AO has noted exactly the same facts wherein he has made same name of companies to whom he has alleged that assessee has made bogus purchases. The names of these parties are as under:- S.NO. NAME OF THE COMPANIES GROUP 1. Daksh Diamonds Bhanwarlal Jain Group 2. Mohit Enterprises 3. Mukti Exports 4. Nice Diamonds 5. Sun Diam Rajendra Jain Group 6. Aadi Impex 7. Vitraag Jewels 8. AVI exports 9. Moulimani Impex Pvt. Ltd. 10. Nay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hases has been debited, has been verified and confirmed by the parties on which, no addition has been made by the AO. In so far as genuineness of the purchases of these parties, we find from the perusal of documents enclosed in the paper book clearly establishes the purchases made are genuine and without any inquiry by the AO done, addition cannot be sustained. 38. In any case, assessments for AY 2007-07 and 2008-09 had attained finality during the date of search and there was not pending assessment, therefore no addition could have been made without any incriminating material found during the course of search and the aforesaid addition on account of purchase is not based on any incriminating documents found during search. Accordingly, the same cannot be sustained on this ground also. 39. Resultantly, the addition on account of purchases for the AY 2007-08 and 2008-09 are directed to be deleted. 40. In AY 2007-08, assessee has raised one additional issue on account of legal and professional fees aggregating to Rs. 18 lakhs paid to Mr. Shrenijin P. V. and Ms. Soni K. B. Assessee has filed the following details before the AO, which are as under:- Particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stly, the said two advocates are in no way related to the assessee or its promoters. 44. He further submitted that on 28.12.2010, that is almost eight months before the search action being carried out on the assessee on 25.08.2011, statement of its director was recorded under section 133 of the Act wherein, it has been alleged that he has accepted that the said advocates have not provided any legal services to the assessee company. It is only based on the said statement that the expenditure towards the legal and professional fees has been disallowed despite providing the relevant information and material. Disallowance of the said expenditure in the order passed under section 153A of the Act is not permissible because no incriminating material in relation to the said payment has been found in the course of the search. The statement of the director was already available before the search action. 45. On the other hand, Ld. DR strongly relied on the order passed by AO and Ld. CIT(A). 46. After considering the aforesaid submissions and perusal of the material placed on record, we find that there is no dispute that the above 2 persons were legal professionals with whom assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked out the peak of investment made for the purchases, made from Nayan Gems, Aadi Impex and Sun Diam. 50. Ld. CIT(A) held that entire purchases cannot be added and has applied 5% of GP rate on alleged bogus purchases. 51. Our findings given in the aforesaid appeals will apply mutatis mutandis in this appeal also because here again, no inquiry or notice were sent u/s 133(6) to these parties, because information itself was received on 24.03.2014 and assessment order was passed on 31.03.2014, so there was no occasion to send notices. On the contrary, assessee has given all the relevant documents as given in earlier years and this year also, all the documents relating to purchases as discussed in the earlier part of the order, has been filed. Thus, purchases cannot be held to be non-genuine or bogus. Accordingly, the same is deleted. 52. In so far as issue on legal and professional fees are concerned, the same are based on the same reasoning given by the AO, which we have already deleted the said disallowance as in decided the appeals for AYs 2007-08 and 2008-09. Accordingly, the said disallowance is deleted. 53. In the result, the appeal filed for AY 2009-10 is also allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
