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2017 (12) TMI 1408 - AT - Income TaxAddition being bogus purchase of diamonds from M/s. Vitrag Jewels - Held that - From the pictorial chart the activities of persons/concerns in each Box is as stated and the numerical numbers are step by step activities in serial number of concerns in Box C Rajendra Jain s concerns place first the order (1) with foreign Belgium concerns for diamonds. The Box B concerns, (2) takes the order and ships the diamond to Box C , then (3) the concern in Box C collects the diamond sent by Box B , then (4) the diamonds are sent to concerns like assessee in Box E and the (5) the concerns in Box E purchases the diamonds and the (6) issues the cheques/RTGS in the name of the concerns shown in the invoice of sale i.e. concerns named in Box C . Thereafter (7) step, the Box C concerns after receiving the cheque/RTGS from Box E concerns (assessee), deposit it in their bank account. Thereafter (8) step concern in Box C converts the amount deposited in their accounts into foreign exchange and transfer it to Box B . (9th) step, the Belgium concern in Box B gets the sale consideration of diamonds sold to Box C concern. When the aforesaid transaction is seen in the light of the statement of assessee that in the diamond business, the Angadias bring the diamond to their show room and the assessee selects some diamonds from them, which are invoiced in the name of concerns in Box C and the cheques/RTGS are deposited in their bank accounts (Box C ) concerns means the assessee cannot be said to be doing business as suggested by concerns in Box C . From the aforesaid entire transaction the only inference in respect to the role of persons named in Box D can only be that of carriers of diamond to people like assessee. This inference from the aforesaid analysis can only be changed by bringing cogent evidence or at least by bringing on record the statements of the nine persons named in Box D to the effect that they corroborate the version given by Shri Rajendra Jain as correct. Thus we are of the considered opinion that the additions saddled on the assessee for AYs. 2008-09, 2010-11, 2011-12, 2012-13 and 2014-15 should be deleted and we order accordingly.
Issues Involved:
1. Reopening of assessment under Section 148 of the Income-tax Act, 1961. 2. Addition of amounts as bogus purchases of diamonds for various assessment years. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 148 of the Income-tax Act, 1961: The assessee initially contested the reopening of assessments for the years 2008-09, 2010-11, 2011-12, 2012-13, and 2014-15 under Section 148 of the Income-tax Act, 1961. However, the assessee's counsel later withdrew these grounds, leading to the dismissal of these objections as "not pressed." 2. Addition of Amounts as Bogus Purchases of Diamonds: The primary issue in all the appeals was the addition of amounts as bogus purchases of diamonds. The Assessing Officer (AO) disallowed the purchases from various entities, including M/s. Vitrag Jewels, M/s. Kangan Jewels Pvt. Ltd., and M/s. Arihant Exports, on the grounds that these were bogus transactions. The AO based his findings on the failure of the assessee to produce the Principal Officers of these entities and relied heavily on the statements of Shri Rajendra Jain and Shri Dharmichand Jain, who controlled these entities. Detailed Analysis: Assessment Year 2008-09: The AO reopened the assessment based on information received from the Directorate of Income Tax (Investigation) that the assessee had made bogus purchases amounting to ?27,28,000 from M/s. Vitrag Jewels. Despite the assessee providing invoices, bank statements, and other documentary evidence, the AO disallowed the purchases due to the non-production of the Principal Officer of M/s. Vitrag. Assessment Years 2010-11 to 2012-13: For these years, the AO disallowed purchases from M/s. Kangan Jewels Pvt. Ltd. based on similar grounds. The amounts disallowed were ?32,41,440 (AY 2010-11), ?38,99,463 (AY 2011-12), and ?35,39,363 (AY 2012-13). Assessment Year 2014-15: The AO disallowed purchases amounting to ?37,50,000 from M/s. Arihant Exports, again based on the statements of Shri Rajendra Jain and the failure of the assessee to produce the Principal Officer of M/s. Arihant. Tribunal's Findings: The Tribunal noted that the AO and the CIT(A) heavily relied on the statements of Shri Rajendra Jain and Shri Dharmichand Jain without providing the assessee an opportunity to cross-examine them. The Tribunal emphasized that assessment proceedings must adhere to the principles of natural justice, and any material used against the assessee must be disclosed to them. The Tribunal found the statements of Shri Rajendra Jain to be contradictory and illogical. It observed that the modus operandi suggested by Shri Rajendra Jain, involving multiple entities and transactions, did not hold up to scrutiny. The Tribunal pointed out that the AO failed to conduct a thorough investigation, such as summoning the suppliers or verifying the transactions with the Sales Tax authorities. The Tribunal also noted that the AO accepted the sales made by the assessee from the disputed purchases, which further undermined the AO's stance on the purchases being bogus. The Tribunal concluded that the assessee had provided sufficient documentary evidence to substantiate the purchases and that the AO's disallowance was based on conjecture and surmise. Conclusion: The Tribunal ruled in favor of the assessee, directing the deletion of the additions made by the AO for all the assessment years in question. The appeals were partly allowed, with the Tribunal emphasizing the need for adherence to natural justice and proper investigation by the tax authorities. The order was pronounced on December 15, 2017.
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