ITO 19(2)(4), MUMBAI v. NAITIK GEMS, MUMBAI

ITA 6718/MUM/2016 | 2007-2008
Pronouncement Date: 29-11-2017 | Result: Dismissed

Appeal Details

RSA Number 671819914 RSA 2016
Assessee PAN AAAFN5200F
Bench Mumbai
Appeal Number ITA 6718/MUM/2016
Duration Of Justice 1 year(s) 13 day(s)
Appellant ITO 19(2)(4), MUMBAI
Respondent NAITIK GEMS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted Not Allotted
Tribunal Order Date 29-11-2017
Assessment Year 2007-2008
Appeal Filed On 16-11-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH E MU MBAI BEFORE SHRI P.K. BANSAL VICE-PRESIDENT AND SHRI PA WAN SINGH JUDICIAL MEMBER ITA NO. 6718/MUM/2016 (ASSESSMENT YEAR-2007-08) ITO -19(2)(4) ROOM NO. 217 MATRU MANDIR MUMBAI-400007. VS. M/S NAITIK GEMS 1304 PRASAD CHAMBERS OPERA HOUSE MUMBAI-400004. PAN: AAAFN5200F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V. JUSTIN (SR. DR) REVENUE BY : SHRI ASHOK J. PATIL (AR) DATE OF HEARING : 31.10.2017 DATE OF PRONOUNCEMENT : 29.11.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH JUDICIAL MEMBER: 1. THIS APPEAL BY REVENUE U/S 253 OF THE INCOME-TAX AC T (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-30 MUMBAI DATED 26.08.2016 FOR ASSESSMENT YEAR (AY) 2007-08. THE REVENUE HAS RAISE D THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW WHETHER LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION ON THE TOTAL P URCHASE AMOUNT OF RS. 84 00 000/- FROM M/S LITTLE DIAM. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WHETHER LD. CIT(A) WAS CORRECT IN SUSTAINING ONLY 4% OF THE TOTAL PURC HASE AMOUNTOF RS. 84 00 000/- FROM M/S LITTLE DIAM AS PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LEANED CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORT AND TRADING OF DIAMONDS FIL ED HIS RETURN OF INCOME ITA NO. 6718/M/2016- M/S NAITIK GEMS 2 FOR RELEVANT AY ON 01.11.2007 DECLARING TOTAL INCOM E OF RS. 3 56 960/-. THE ASSESSMENT WAS PROCESSED UNDER SECTION 143(1) OF TH E ACT. SUBSEQUENTLY THE ASSESSMENT WAS RE-OPENED UNDER SECTION 147 OF T HE ACT. NOTICE UNDER SECTION 148 DATED 27.03.2014 WAS ISSUED AND SERVED UPON THE ASSESSEE. THE NOTICE UNDER SECTION 148 WAS SERVED AFTER RECORDING THE REASONS FOR RE- OPENING. THE REASONS OF RE-OPENING OF ASSESSMENT WE RE BASED ON THE INFORMATION THAT A SEARCH AND SEIZURE ACTION WAS CO NDUCTED ON 03.10.2013 BY INVESTIGATION WING OF INCOME-TAX DEPARTMENT MUM BAI IN GROUP CONCERN OF SHRI BHANWARLAL JAIN. DURING THE SAID SE ARCH OPERATION IT WAS FOUND THAT SHRI BHANWARLAL JAIN AND FAMILY WERE PRO VIDING ACCOMMODATION ENTRIES WITHOUT SUPPLY OF GOODS. IT WAS FURTHER REV EALED THAT ASSESSEE IS ONE OF SUCH BENEFICIARY WHO HAS AVAILED ACCOMMODATION E NTRIES FROM M/S LITTLE DIAM FOR RS. 84 00 000/-. THUS ON THE BASIS OF INF ORMATION AND THE EVIDENCE GATHERED THE AO FORM AN OPINION THAT RETU RN OF INCOME FILED BY ASSESSEE HAS ESCAPED FROM ASSESSMENT. THE ASSESSMEN T WAS COMPLETED UNDER SECTION 143(3) R.W.S. 147 ON 27.03.2015. THE AO WHILE PASSING THE ASSESSMENT ORDER MADE THE ADDITION ON ACCOUNT OF NO N-GENUINE PURCHASES OF RS. 84 00 000/-. ON APPEAL BEFORE THE LD. CIT(A) T HE ADDITION WAS SUSTAINED @ 4% OF TOTAL PURCHASES SHOWN BY ASSESSEE FROM M/S LITTLE DIAM. THUS AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REVENUE H AS FILED THE PRESENT APPEAL BEFORE US. ITA NO. 6718/M/2016- M/S NAITIK GEMS 3 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSES SEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR FOR THE RE VENUE SUPPORTED THE ORDER OF AO AND WOULD ARGUE THAT THE INVESTIGATION WING OF INCOME-TAX DEPARTMENT MUMBAI MADE A FULL-FLEDGED ENQUIRY ABOU T THE VARIOUS CONCERNS MANAGED BY SHRI BHANWARLAL JAIN AND HIS FA MILY MEMBERS WHO WERE PROVIDING ACCOMMODATION ENTRIES WITHOUT DELIVE RY OF GOODS. DURING THE SEARCH IT WAS FOUND THAT ALL DIRECTORS /PARTNE RS/PROPRIETORS OF VARIOUS CONCERNS BELONGS TO NATIVE PLACE OF SHRI BHANWARLAL JAIN (B.L.JAIN) OR WAS HIS CLOSE RELATIVES. IN THE SEARCH ACTION THE STAT EMENT OF SH. B.L. JAIN WAS RECORDED ON 11.10.2003 WHEREIN HE HAD ADMITTED THA T ALL THE CONCERNS/FIRMS/COMPANIES WERE MANAGED BY HIS FAMILY MEMBERS. THE ASSESSEE WAS ONE OF THE BENEFICIARIES OF SUCH ACCOM MODATION ENTRIES OF BOGUS PURCHASES. THE ASSESSEE HAS AVAILED SUCH ENTR Y ONLY TO SUPPRESS THE TRADE PROFIT AND TO REDUCE THE TAX LIABILITY. THE L D. DR FOR THE REVENUE PRAYED TO UPHOLD THE ACTION OF AO. ON THE OTHER HAN D THE LD. AR OF THE ASSESSEE ARGUED THAT THE AO MADE THE ADDITION ON TH E BASIS OF THIRD PARTY INFORMATION WITHOUT PROVIDING THE COPY OF SUCH EVID ENCE TO THE ASSESSEE DURING THE ASSESSMENT PROCEEDING THE ASSESSEE FILE D COMPLETE DETAILS OF PURCHASE DETAILS OF SALE DETAILS OF SUNDRY DEBTOR AND CREDITOR AND COPY OF SALE-TAX RETURN ALONG WITH CHALLAN BILL-WISE PARTI CULAR PURCHASES FROM M/S LITTLE DIAM WITH QUANTITY RATE VALUE WITH THE COP IES OF THE BILL AND COPY OF ITA NO. 6718/M/2016- M/S NAITIK GEMS 4 STATEMENT OF EVIDENCE THE PAYMENT MADE AGAINST EAC H BILLS. THE ASSESSEE ALSO FURNISHED TAX AUDIT REPORT. THE AO NEVER POINT ED OUT ANY DISCREPANCY IN THE STOCK STATEMENT THE ASSESSEE HAS SPECIFICAL LY ASKED THE AO THAT ORDER PASSED UNDER SECTION 143(1) WAS NOT RECEIVED BY ASS ESSEE. UNLESS THE ORIGINAL ASSESSMENT ORDER IS PASSED. SUBSEQUENT RE- OPENING UNDER SECTION 147 IS NOT WITHIN THE PROVISION OF THE SAID SECTION THE AO MADE THE ADDITION ON THE BASIS OF STATEMENT OF LUNKARAN P. KOTHARI. T HE ASSESSEE WAS NOT GIVEN ANY OPPORTUNITY TO CROSS-EXAMINE LUNKARAN P. KOTHARI. THE ASSESSEE NEVER DEALT WITH SHRI BHANWARLAL JAIN. ALL THE TRAN SACTION CARRIED BY ASSESSEE WERE GENUINE IN NATURE. THE AO HAS NOT GIV EN ANY FINDING ON VARIOUS DOCUMENT PROVIDED BY ASSESSEE. THE LD. CIT( A) SUSTAINED THE ADDITION @ 4% ON THE BASIS OF PROFIT MARGIN ON THE SAID PURCHASES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO MAD E THE RE-OPENING ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WI NG OF INCOME-TAX DEPARTMENT. THE AO MADE THE ADDITION OF ENTIRE PURC HASES SHOWN BY ASSESSEE FROM M/S LITTLE DIAM. THE AO HAS NOT REJEC TED THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAS NOT DISPUTED TH E SALE OF THE ASSESSEE NO DISCREPANCY IN THE DOCUMENTARY EVIDENCES FURNISHED BY ASSESSEE WERE POINTED OUT BY THE AO. THE AO MADE THE ADDITIONS ON THE BASIS OF THIRD PARTY INFORMATION. THE LD. CIT(A) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE PASSED THE FOLLOWING ORDER: ITA NO. 6718/M/2016- M/S NAITIK GEMS 5 8.3 I HAVE FOUND THAT IN THE APPELLANT'S CASE LD. AO H AS NOT MADE ANY INDEPENDENT VERIFICATIONS NOR HE HAS ATTEMPTED TO I SSUE NOTICE U/S. 133(6)/131 OF THE ACT BUT THE FACT REMAINS THAT TH ERE WAS AN OVERWHELMING EVIDENCE IN THE FORM OF SWORN STATEMENTS RECORDED F ROM THE ALLEGED SUPPLIERS GIVEN BEFORE THE INVESTIGATION WING MUMB AI THAT M/S LITTLE DIAM IS ONLY A DUMMY CONCERN AND THE ACTUAL MANAGEM ENT & CONTROL IS WITH SHRI BHANWARLAL JAIN & HIS FAMILY MEMBERS. SHR I BHANWARLAL JAIN ALSO ADMITTED THAT THEY ARE ONLY GIVING ACCOMMODATION EN TRIES TO SEVERAL PARTIES AND THE APPELLANT IS ONE AMONG THEM. THOUGH THE APP ELLANT IN THE SUBMISSIONS STATED THAT SRI LUNKARN P. KOTHARI RETR ACTED THE STATEMENT GIVEN BY HIM DURING THE SEARCH ACTION IT IS A FACT THAT THE STATEMENT INITIALLY GIVEN WAS U/S 132(4) OF THE ACT DURING THE COURSE OF SEAR CH PROCEEDINGS AND THE POST SEARCH INVESTIGATION CONFIRMED THE STATEMENT. FURTHER THE APPELLANT FAILED TO FURNISH ANY CONCRETE EVIDENCE IN SUPPORT OF SUCH RETRACTION STATEMENT. 8.4 AFTER WEIGHING THE EVIDENCE PRO AND CON I AM OF THE OPINION THAT ONUS IS ALWAYS ON THE APPELLANT TO PROVE AS TO HOW THE M ATERIAL PURCHASED WAS FIRSTLY OBTAINED WHEN THE SUPPLIER HIMSELF ADMITTED THAT HE NEVER DID THE BUSINESS AND IS A MERE NAME LENDER FOR THE BUSINESS CONCERNS OF SHRI BHANWARLAL JAIN WHO HAS ADMITTED THAT ONLY ACCOMMO DATION ENTRIES WERE GIVEN AND NO ACTUAL SALE TO THE PARTIES. IN VIEW OF THE SAME I AM OF THE OPINION THAT THE PURCHASE IS NOT MADE FROM THE PART Y BUT FROM THE GREY MARKET BY PAYING CASH AND AS THE BILLS ARE NOT AVAI LABLE FOR SUCH TRANSACTIONS THE APPELLANT IS FORCED TO OBTAIN THE BILL FROM THIRD PARTIES WHO AFTER RECEIPT OF CHEQUES RETURN THE CASH AFTER DEDU CTING ITS COMMISSION. A PERSON WHO PROCURES THE MATERIAL FROM THE GREY MARK ET AND EXPORTS THE SAME AND RECELVES THE SALE PROCEEDS THROUGH PROPER BANKING CHANNELS TO COMPLETE THE CHAIN OF TRANSACTION I.E. TO BOOK THE PURCHASES AGAINST THE SALE PROCEEDS RECEIVED OBTAIN THE BILLS FROM ENTRY PROV IDERS -LIKE SHRI BHANWARLAL JAIN ENTITIES IN THE PRESENT CASE-ISSUES CHEQUE TO THEM AND RECEIVES THE AMOUNT BACK IN CASH. IN THIS BACKGROUN D CHEQUES WERE ISSUED TO BHANWARLAL GROUP ENTITY M/S LITTLE DIAM AND THE APPELLANT HAS NO OTHER OPTION BUT TO TAKE BILLS FROM THE ENTRY PROVIDER A S THEY NEEDS TO COMPLETE THE TRADING ACTIVITY IN RESPECT OF THE DIAMONDS SOL D IN THE BOOKS OF ACCOUNTS. FROM THESE FINDINGS IT CAN THUS BE SAFELY ASSUMED T HAT THE APPELLANT HAS GROSSLY FAILED IN ITS DUTY TO MITIGATE THE BURDEN C AST UPON IT IN SO FAR AS PROVING THE GENUINENESS OF THE TRANSACTION FROM TH E SAID PARTY IS CONCERNED. 8.5 IN THIS REGARD IT IS ALSO PERTINENT TO MENTION THAT WHILE DEALING WITH THE CONCEPT OF BURDEN OF PROOF ONUS OF PROVING THE CLA IM IS ALWAYS ON THE PERSON WHO MAKES SUCH CLAIM. WHILE DEALING WITH THE ISSUE OF DECIDING THE BURDEN OF PROOF HON'BLE SUPREME COURT IN THE CASES OF CIT VS. DURGAPRASAD MORE 82 ITR 540 AND SUMATI OAYAL VS. CI T 214 ITR 801 HAS HELD THAT THE APPARENT MUST BE CONSIDERED REAL UNTI L IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL AN D THAT TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY ITA NO. 6718/M/2016- M/S NAITIK GEMS 6 AND THE MATTER HAS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. THE HON'BLE COURT ALSO HELD THAT IT IS NO DOUBT TRUE THAT IN ALL CASES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS I NCOME THE BURDEN LIES ON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXIN G PROVISION AND IF A RECEIPTS IN THE NATURE OF INCOME THE BURDEN TO PRO VE THAT IT IS' NOT TAXABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE A CT LIES UPON THE ASSESSEE. IN THE CASE DURGAPRASAD MORE (SUPRA) THE HON'BLE COURT WENT ON TO ADD THAT A PARTY WHO RELIES ON A RECITAL IN A DE ED HAS TO ESTABLISH THE TRUTH OF THIS RECITAL OTHERWISE IT WILL BE VERY EASY TO MAKE SELF SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY WH O RELIED ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVAD E TAX HAS TO HAVE SOME RECITALS MADE IN A DOCUMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT WIDE OPEN TO EVAD E TAX. THE HON'BLE COURT FURTHER HELD THAT THE TAXING AUTHORITIES WERE NOT R EQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM . THEY WERE ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. 8.6 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF HON 'BLE SUPREME COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD 63 ITR 609 WHER E IT WAS HELD THAT THE I.T. AUTHORITIES ARE ENTITLED TO PIERCE THE VEIL OF CORPORATE ENTITY AND TO LOOK INTO REALITY OF TRANSACTION. IN THE CASE OF MC DOWELL & CO. 154 ITR 148(SC) IT WAS STATED THAT IMPLICATIONS OF TAX AVOI DANCE ARE MANIFOLD. FIRST THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REV ENUE. NEXT THERE IS SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE CO UNTRY DUE TO PILING OF MOUNTAINS OF BLACK MONEY CAUSING INFLATION. THUS THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY BY SOME OF THE MEMBE RS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN T HE TAX PAYER AND HIS EXPERT TEAM OF ADVISORS AND ACCOUNTANTS ON THE ONE SIDE AND THE TAX GATHERER AND HIS PERHAPS NOT SO SUCCESSFUL ADVISORS ON THE OTHER SIDE. 8.7 THE ONUS TO PROVE THAT APPARENT IS NOT THE REA L ONE IS ON THE PARTY WHO CLAIMS IT TO BE SO AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. DAULAT RAM RAWATMULL [1973] 87 ITR 349 AND CIT V . DURGA PRASAD MORE (SUPRA). IT IS ALSO A SETTLED LEGAL PROPOSITIO N THAT IF NO EVIDENCE IS GIVEN BY THE PARTY ON WHOM THE BURDEN IS CAST THE ISSUE MUST BE FOUND AGAINST HIM. HOWEVER IN THE INSTANT CASE THE APPE LLANT HAS MISERABLY FAILED TO LEAD EVIDENCE. 8.8 THE HON'BLE SUPREME COURT IN THE CASE OF CHUH ARMAL V. CIT [1988] 172 ITR 250/38 TAXMAN 190 HIGHLIGHTED THE FACT THAT THE PRINCIPLE OF EVIDENCE LAW ARE NOT TO BE IGNORED BY THE AUTHORITI ES BUT AT THE SAME TIME HUMAN PROBABILITY HAS TO BE THE GUIDING PRINCIPLE SINCE THE AO IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AS HELD B Y THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V . CIT [1954] 26 ITR 775. THE HON'BLE SUPREME COURT IN THE CASE OF CHUH ARMAL (SUPRA) HELD THAT WHAT WAS MEANT BY SAYING THAT EVIDENCE ACT DID NOT APPLY TO THE ITA NO. 6718/M/2016- M/S NAITIK GEMS 7 PROCEEDINGS UNDER INCOME-TAX ACT 1961 WAS THAT TH E RIGOURS OF RULES OF EVIDENCE CONTAINED IN THE EVIDENCE ACT WAS NOT APP LICABLE; BUT THAT DID NOT MEAN THAT WHEN THE TAXING AUTHORITIES WERE DESIROUS OF INVOKING THE PRINCIPLES OF EVIDENCE ACT IN PROCEEDINGS BEFORE T HEM THEY WERE PREVENTED FROM DOING SO. IT WAS FURTHER HELD BY THE HON'BLE APEX COURT THAT ALL THAT SECTION 110 OF THE EVIDENCE ACT 1872 DID WAS TO EMBODY A SALUTARY PRINCIPLE OF COMMON LAW JURISPRUDENCE VIZ WHERE A PERSON WAS FOUND IN POSSESSION OF ANYTHING THE ONUS OF PROVIN G THAT HE WAS NOT ITS OWNER WAS ON THAT PERSON. THUS THIS PRINCIPLE COU LD BE ATTRACTED TO A SET OF CIRCUMSTANCES THAT SATISFIES ITS CONDITIONS AND WAS APPLICABLE TO TAXING PROCEEDINGS. 8.9 THE APPELLANT CONTENDS THAT THE AO DID NOT MAKE ANY INDEPENDENT INQUIRIES ON HIS OWN. HOWEVER IN THIS CASE THE INVE STIGATION WING OF THE INCOME TAX DEPARTMENT CONDUCTED SEVERAL INQUIRIES I N THE POST SEARCH INVESTIGATION AFTER THE SEARCH ACTION IN THE BHANWA RLAL GROUP CASES AND INTIMATED TO THE ASSESSMENT WING WITH CLEAR CUT FIN DINGS THAT ACCOMMODATION ENTRIES WERE PROVIDED TO SEVERAL PART IES BY THE GROUP AND THE APPELLANT IS ONE AMONG THE BENEFICIARIES FROM S UCH ACCOMMODATION ENTRIES. 8.10 IN THIS CASE QUANTITATIVE DETAILS AND STOCK R EGISTER WERE MAINTAINED AND MOREOVER LD. AO NOT DOUBTED THE GENUINENESS O F SALES HOWEVER ADDED THE TOTAL AMOUNT OF PURCHASES OF RS. 84 00 0 00/- MADE FROM M/S LITTLE DIAM A CONCERN OF SHRI BHANWARLAL JAIN BY RECORDING A FINDING THAT THE APPELLANT MADE THE PURCHASES WERE NON-GENUINE A ND NOT VERIFIABLE. WITHOUT DISTURBING THE SALES ADDING THE ENTIRE AMOU NT OF PURCHASE AS INCOME IS NOT CORRECT THAT TOO WHEN MAJOR PORTION O F THE SALES ARE EXPORT SALES AND THE PROCEEDS ARE RECEIVED FROM THE BANKIN G CHANNELS. IN THIS SITUATION THE ISSUE WOULD BOIL DOWN TO FINDING OUT WHAT IS THE CORRECT ELEMENT OF PROFIT EMBEDDED IN BOGUS PURCHASES WHICH THE APPELLANT WOULD HAVE MADE FROM SOME UNKNOWN ENTITY. IN THIS REGARD IT IS APT TO REFER TO CERTAIN DECISIONS DEALING THE SIMILAR TYPE OF ISSUE . THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF BHOLANATH POLY FAB PVT. L TD. 355 ITR 290 (GUJ) WHERE THE HON'BLE COURT WAS BATTLING WITH THE FINDI NG OF HON'BLE ITAT THAT PURCHASES WERE MADE FROM BOGUS PARTIES SINCE NOTICE ISSUED BY THE AO TO THESE PARTIES WERE ALLEGEDLY RECEIVED 'RETURNED/UNS ERVED' AND THE ASSESSEE WAS UNABLE TO PRODUCE ANY CONFIRMATION FROM THESE P ARTIES. THE TRIBUNAL HAD HELD THAT THOUGH PURCHASES WERE MADE FROM BOGUS PARTIES NEVERTHELESS THE PURCHASES THEMSELVES WERE NOT BOGUS AS THE ENTI RE QUANTITY OF OPENING STOCK PURCHASES AND SALES WERE TALLYING AND HENCE ONLY THE PROFIT MARGIN EMBEDDED IN SUCH AMOUNT WOULD BE SUBJECTED TO TAX. THE HON'BLE GUJARAT HIGH COURT TAKING COGNIZANCE OF THE FACT HELD THAT WHETHER PURCHASES THEMSELVES WERE BOGUS OR WHETHER PARTIES FROM WHOM SUCH PURCHASES WERE MADE WERE BOGUS IS ESSENTIALLY. A QUESTION OF FACT AND THE TRIBUNAL HAVING EXAMINED THE EVIDENCE ON RECORD CONCLUDED THAT THE ASSESSEE DID PRODUCE CLOTH AND SELL FINISHED GOODS THE ENTIRE AMOUNT CO VERED UNDER SUCH ITA NO. 6718/M/2016- M/S NAITIK GEMS 8 PURCHASE WOULD NOT BE SUBJECTED TO TAX AND ONLY THE PROFIT ELEMENT EMBEDDED THEREIN WAS TO BE TAXED. WHILE COMING TO T HE ABOVE CONCLUSION THE HON'BLE HIGH COURT ALSO RELIED ON THE DECISION IN THE CASE OF SANJAY OIL CAKE IND. 316 ITR 274 (GUJ). 8.11 IN SANJAY OILCAKE INDUSTRIES V. COMMISSIONER O F INCOME-TAX [2009] 316 ITR 274 (GUJ) IT WAS HELD AS UNDER: '12. THUS IT IS APPARENT THAT BOTH THE COMMISSIONE R (APPEALS) AND THE TRIBUNAL HAVE CONCURRENTLY ACCEPTED THE FINDING OF THE ASSESSING OFFICER THAT THE APPARENT SELLERS WHO HAD ISSUED SALE BILLS WERE NOT TRACEABLE. THAT GOODS WERE RECEIVED FROM THE PARTIES OTHER THAN THE PERSONS WHO HAD ISSUED BILLS FOR SUCH GOODS. THOUGH THE PURCHASES ARE SHOW N TO HAVE BEEN MADE BY MAKING PAYMENT THEREOF BY ACCOUNT PAYEE CHEQUES/ TH E CHEQUES HAVE BEEN DEPOSITED IN HANK ACCOUNTS OSTENSIBLY IN THE NAME O F THE APPARENT SEUERS. THEREAFTER THE ENTIRE AMOUNTS HAVE BEEN WITHDRAWN B Y BEARER CHEQUES AND THERE IS NO TRACE OR IDENTITY OF THE PERSON WITHDRA WING THE AMOUNT FROM THE BANK ACCOUNTS. IN THE LIGHT OF THE AFORESAID NATURE OF EVIDENCE IT IS NOT POSSIBLE TO RECORD A DIFFERENT CONCLUSION/ DIFFEREN T FROM THE ONE RECORDED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL CONCURR ENTLY HOLDING THAT THE APPARENT SELLERS WERE NOT GENUINE/ OR WERE ACTING A S CONDUIT BETWEEN THE ASSESSEE-FIRM AND THE ACTUAL SELLERS OF THE RAW MAT ERIALS. BOTH THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE THERE FORE COME TO THE CONCLUSION THAT IN SUCH CIRCUMSTANCES THE LIKELIHO OD OF THE PURCHASE PRICE BEING INFLATED CANNOT BE RULED OUT AND THERE IS NO MATERIAL TO DISLODGE SUCH FINDING. THE ISSUE IS NOT WHETHER THE PURCHASE PRIC E REFLECTED IN THE BOOKS OF ACCOUNT MATCHES THE PURCHASE PRICE STATED TO HAVE B EEN PAID TO OTHER PERSONS. THE ISSUE IS WHETHER THE PURCHASE PRICE PA ID BY THE ASSESSEE IS REFLECTED AS RECEIPTS BY THE RECIPIENTS. THE ASSESS EE HAS BY SET OF EVIDENCE AVAILABLE ON RECORD MADE IT POSSIBLE FOR THE RECIP IENTS NOT BEING TRACEABLE FOR THE PURPOSE OF INQUIRY AS TO WHETHER THE PAYMEN TS MADE BY THE ASSESSEE HAVE BEEN ACTUALLY RECEIVED BY THE APPARENT SELLERS . HENCE/ THE ESTIMATE MADE BY THE TWO APPELLATE AUTHORITIES DOES NOT WARR ANT INTERFERENCE. EVEN OTHERWISE WHETHER THE ESTIMATE SHOULD BE AT A PART ICULAR SUM OR AT A DIFFERENT SUM/ CAN NEVER BE AN ISSUE OF LAW. 8.12 SIMILARLY IN YET ANOTHER DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SIMIT SHETH (2013) 38 TAXMANN.COM 3 85 (GUJ) HON'BLE COURT WAS SEIZED WITH A SIMILAR ISSUE WHERE THE A.O . HAD FOUND THAT SOME OF THE ALLEGED SUPPLIERS OF STEEL TO THE ASSESSEE H AD NOT SUPPLIED ANY GOODS BUT HAD ONLY PROVIDED SALE BILLS AND HENCE PURCHAS ES FROM THE SAID PARTIES WERE HELD TO BE BOGUS. THE AO IN THAT CASE ADDED T HE ENTIRE AMOUNT OF PURCHASES TO GROSS PROFIT OF THE ASSESSEE. LD. CIT( A) HAVING FOUND THAT THE ASSESSEE HAD INDEED PURCHASED THOUGH NOT FROM NAMED PARTIES BUT OTHER PARTIES FROM GREY MARKET PARTIALLY SUSTAINED THE A DDITION AS PROBABLE PROFIT OF THE ASSESSEE. THE TRIBUNAL HOWEVER SUSTAINED TH E ADDITION TO THE EXTENT OF 12.5%. TAKING INTO ACCOUNT THE ABOVE FACTS THE HON'BLE GUJARAT HIGH COURT HELD THAT SINCE THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM PARTIES OTHER THAN THOSE MENTIONED IN BOOKS OF ACCO UNTS ONLY THE PROFIT ITA NO. 6718/M/2016- M/S NAITIK GEMS 9 ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED T O THE ASSESSEE'S INCOME AND AS SUCH NO QUESTION OF LAW AROSE IN SUCH ESTIMATION. THE TRIBUNAL FOR ARRIVING THE PROFIT EMBEDDED IN THE TR ANSACTIONS @ 12.5% HELD AS UNDER: ''HAVING HEARD THE SUBMISSIONS OF BOTH SIDES WE HA VE BEEN INFORMED THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC... 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 DI RECT THAT THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED AT 12.5% O F THE PURCHASE FROM THOSE PARTIES. WITH THESE DIRECTIONS WE HEREBY DEC IDE THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED. 8.13 TAKING THE LOGIC OF THE ABOVE CASES AND THE MA TERIAL AVAILABLE ON RECORD THE PROFIT PERCENTAGE TO BE ADOPTED ON SUCH BOGUS PURCHASE IS TO BE DECIDED IN THE PRESENT CASE. THE APPELLANT IN THE G ROUNDS AS WELL AS IN THE WRITTEN SUBMISSIONS DISCUSSED ABOUT THE BENIGN ASS ESSMENT PROCEDURE (BAP) FOR THE ASSESSES WHO ARE INTO MANUFACTURING A ND / OR TRADING OF DIAMONDS INTRODUCED BY THE GOI. BAP IS APPLICABLE FOR THOSE DIAMOND MERCHANTS WHO WERE SHOWING A PROFIT MARGIN OF 8% O F THEIR TURNOVER. ALTHOUGH BAP TALKS ABOUT THE NET PROFIT MARGIN (NP ) FOR A PETTY DEALER OPERATING WITHOUT ANY ESTABLISHMENT THE GP WOULD B E ALMOST SIMILAR TO NP. HENCE IT WAS ASSUMED THAT THE MARGIN IN THE MARKET FOR A PETTY DEALER WOULD BE 8% WHICH IS THE SAME MARGIN THAT IS NOW B EING ADOPTED FOR PURCHASES MADE IN CASH FROM THE GREY MARKET AND FOR WHICH THE BILLS ARE PROCURED FROM THE BHANWARLAL JAIN GROUP CONCERNS. I N THE LIGHT OF THE ABOVE ONE HAS TO SEE IN THE PRESENT CASE WHO IS I N THE MANUFACTURING AND TRADING OF DIAMONDS WHAT IS THE PROFIT ELEMENT EMB EDDED ON SUCH PURCHASES. 8.14 THE APPELLANT'S FIRST PRAYER IS TO DELETE THE ENTIRE ADDITION WHICH IS NOT TENABLE AS THE APPELLANT COULD NOT PROVE THE GENUIN ENESS OF THE PURCHASE MADE FROM M/S LITTLE DIAM. WITHOUT PREJUDICE THE A PPELLANT REQUESTED TO CONSIDER THE PERCENTAGE MENTIONED IN THE BAP SCHEME OF 8% AND TO REDUCE THE GP ALREADY ADMITTED ON SUCH PURCHASE OF 4.63% A ND TO ADOPT THE BALANCE PERCENTAGE OF 3.37%. ALTERNATIVELY THE APP ELLANT PLEADS TO ADOPT THE PERCENTAGE OF 4% ADOPTED BY DIFFERENT AOS ON TH E SIMILAR PURCHASES MADE FROM THE DUMMY CONCERNS OF SHRI BHANWARLAL JAI N GROUP. IN THE CASE LAWS DISCUSSED ABOVE HON'BLE COURTS HAVE CONSIDERE D PERCENTAGE OF VAT WHICH THE APPELLANT GETS AS BENEFIT BY PURCHASING F ROM GREY MARKET FOR THE CONCERNED TRADES AND THE PROFIT MARGIN IN SUCH TRAD E WHILE ADOPTING CERTAIN PERCENTAGE AS PROFIT ELEMENT EMBEDDED. IN DIAMOND T RADE THE RATE OF VAT IS STATED TO BE LESSER AND PLACES LIKE SURAT THE SAME IS FULLY EXEMPT. CONSIDERING THIS FACTS AND ALSO THE PROFIT MARGIN I N THE TRADE AND THE PERCENTAGE SUGGESTED BY THE TASK FORCE GROUP FOR DI AMOND INDUSTRY CONSTITUTED BY THE GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY AND ALSO AFTER ASCERTAINING THE OPERATING PROFIT IN CASE OF DIAMOND TRADE FOR ITA NO. 6718/M/2016- M/S NAITIK GEMS 10 COMPUTATION OF ALP BY THE TP WING AS WELL AS THE A OS ADOPTING 3% TO 8% ON THE PURCHASES MADE FROM BHANWARLAL GROUP CONCERN S AS THE PROFIT ELEMENT EMBEDDED IN THE SUBSEQUENT ASSESSMENTS FINA LISED ON THE SIMILAR SET OF FACTS I AM OF THE CONSIDERED OPINION THAT A DDING THE ENTIRE AMOUNT OF THE PURCHASE FROM M/S LITTLE DIAM OF RS. 84 00 000/ - BY THE AO IS NOT BASED ON CORRECT FOOTING. CONSIDERING THE LESSER PR OFIT MARGIN IN THIS SECTOR I AM IN AGREEMENT WITH THE ALTERNATIVE REQUEST OF T HE APPELLANT TO ADOPT @ 4% ON THE PURCHASE AS THE PROFIT ELEMENT EMBEDDED I N THE TRANSACTION. THE SAME IS ALSO VERY CLOSE TO THE OTHER PLEA OF THE AP PELLANT TO ADOPT BAP SUGGESTED PERCENTAGE AND REDUCING THE PROFIT MARGIN ALREADY ADMITTED WHICH WORKS OUT TO 3.37%. IN VIEW OF THE ABOVE I AM OF THE CONSIDERED OPINION THAT IF THE ADDITION IS SUSTAINED TO THE EX TENT OF 4% OF THE PURCHASES TOWARDS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHAS ES FROM M/S LITTLE DIAM A CONCERN BELONGING TO THE BHANWARLAL GROUP THE SAME WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY AO IS DIRECTED TO RES TRICT THE ADDITION @ 40/0 ON THE TOTAL PURCHASE AMOUNT OF RS. 84 00 000/- FRO M THE M/S. LITTLE DIAM AS THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES. G ROUNDS RAISED ON THESE ISSUE IS PARTLY ALLOWED. 5. WE HAVE NOTED THAT THE LD. CIT(A) ACCEPTED THE ALT ERNATIVE PLEA OF ASSESSEE AND RESTRICTED THE ADDITION @ 4% OF THE ALLEGED BOG US PURCHASES. WE HAVE FURTHER SEEN THAT THE LD. CIT(A) ALSO CONSIDERED TH E SALE EXPORT SALE AND LOCAL SALE AND EXCHANGE DIFFERENCE OF EXPORT AND ON THE BASIS OF WHICH THE GROSS PROFIT WAS WORKED OUT AT 4.63% ON SUCH SALES. WE ARE OF THE CONSIDERED VIEW THAT UNDER THE INCOME-TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. EVEN IF THE TRANSACTION IS NO T VERIFIABLE THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AND NOT THE ENTIRE TRANSACTION. IN OUR CONSIDERED VIEW THAT IN ORDER TO FULFILL THE GA P OF REVENUE LEAKAGE THE DISALLOWANCE OF REASONABLE PERCENTAGE OF SUCH PURCH ASES/IMPUGNED PURCHASES MEET THE END OF JUSTICE. WE HAVE SEEN THA T THE LD. CIT(A) PASSED THE ORDER AFTER CONSIDERING ALL MATERIAL FACTS AND THE EVIDENCES AVAILABLE BEFORE HIM AND THE DECISIONS OF HONBLE GUJARAT HI GH COURT IN SANJAY OIL ITA NO. 6718/M/2016- M/S NAITIK GEMS 11 CAKE (SUPRA) AND SIMITH P SETH(SUPA). WE HAVE NOTED THAT THE VAT APPLICABLE ON THE MATERIAL PURCHASED/ SHOWN TO HAVE PURCHASED BY THE ASSESSEE DURING THE PERIOD ON THE GEMS & JEWELLERY WAS 1% TO 2% DEPENDING UPON THE NATURE OF THE ITEMS. THUS PERCE NTAGE OF DISALLOWANCE SUSTAINED BY LD CIT(A) @ 4% OF THE ALLEGED PURCHASE S IS REASONABLE ONE. IN OUR VIEW UNDER THE INCOME TAX THE REVENUE IS ENTITL ED TO TAX THE REAL INCOME AND NOT THE ENTIRE TRANSACTION. EVEN OTHERWISE WHE N THE TRANSACTION IS NOT VERIFIABLE DUE TO ANY REASON THE REASONABLE DISALLO WANCE OF SUCH TRANSACTION CAN MEET THE END OF JUSTICE. IN OUR VIEW THE ORDER OF LD. CIT(A) DOES NOT REQUIRE ANY FURTHER INTERFERENCE AT OUR END. HENCE THE APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF NOVEMBER 2017. SD/- SD/- /- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 29/11/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER (ASSTT.REGISTRAR) ITAT MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) MUMBAI. 4. CIT 5. DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY/