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TMI Blog2017 (11) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... passed u/s. 143(3) r.w.s. 147 of the IT Act. 2. In the appeal filed by revenue, revenue is aggrieved for upholding addition of 3% on bogus purchase in place of 25% addition made by the AO. 3. In the Cross Objection, assessee is aggrieved for upholding reassessment u/s.147 and for upholding addition of 3% and the purchases from M/s. Zalak Impex. 4. Rival contentions have been heard and record perused. 5. Facts in brief are that assessee is engaged in the business of manufacture and export of jewellery. Assessee s unit was situated at SEZ wherein profit was not liable to tax and is eligible for deduction u/s.10A. Thus, under provisions of Section 10A entire profit of assessee was exempted. In the year under consideration assessee filed its return at income at ₹ 12,318/-. Return was subject to scrutiny and assessment was completed u/s.143(3) on 22/09/2008 determining business income at ₹ 9,85,900 and income from other sources of ₹ 2,34,440/-. After scrutiny assessment was over, the AO reopened the assessment on the plea that survey u/s.133A was carried out in the case of Shri Hiten L. Raval Prop, of M/s. Zalak Impex by the office of Dy. Director of Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les invoices (exports) in respect of goods manufactured and exported from out of the purchases made from Zalak Impex. Please note that each invoice also gives the details of quantity exported and the corresponding shipping bill, signifying its export out of India from SEEPZ-SEZ, Andheri by our clients. 7. Not satisfied with the assessee s reply, AO added entire purchase in assessee s income. 8.Before the CIT(A) assessee has challenged both reopening as well as merit of the addition. 9. By the impugned order CIT(A) upheld the reopening, however, he has reduced the addition to 3% after observing as under:- I have considered submissions of the Ld. Counsel and the main issue involved in this appeal is that when the purchases are held to be 'fake/bogus' but the sales are not be disproved by the I.T. department - the genuineness of the sales stands established - so much so that the export out of India of the jewellery is proved and cannot be impeached by the I.T. department - other independent agencies like , SEEPZ Authorities - further inward remittance of foreign exchange is all proved - then can the A.O. on the basis of statement of oath recorded during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted then total purchases cannot be disallowed because that will amounts to taxing 100% profit as has been done by the department in the present case. 5.6 It is settled law that in such cases when the total sales are accepted by the department and the issue is regarding the 'identity' of the purchaser only because without purchases there can be no sales and it is only a question of as to from whom did appellant make the purchases in question - then the total purchase cannot be disallowed as has been done by the A.O. but only a G.P. rate has to be applied because whatever discrepancy and manipulation is there it is only in the value of purchase and in such a case, only the G.P. Rate can be applied. 5.7 In the appellant's case, the position of G.P. is as follows: Assessment year G.P. Ratio 2004-05 17.25 2005-06 17.82 2006-07 15.20 The above shows that in A.Y. 2004-05 when the question of fake/bogus purchase was not there, the appellant had shown a G.P. of 17.25%. Similarly in A.Y. 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, it was contended that there is no justification at all in making addition by estimating further profit of 3%. 12. On the other hand, contention of learned DR was that AO has justifiably made the addition on the basis of survey conducted in the case of Shri Hiten L. Rawal, Proprietor of Zalak Impex, wherein Shri Rawal accepted that he was involved in issuing bogus purchase bills to various customers. 13. Learned AR also placed on record the order of the Co-ordinate Bench wherein exactly similar issue was dealt with and the entire addition made by AO estimating further profit on bogus purchase to the extent of 7% was deleted by the Tribunal in the case of Tristar Jewellery in ITA No.7593/Mum/2011, ITA No.6435/Mum/2013 and ITA No.8292/Mum/2011 vide order dated 31/07/2015. 14. We have considered rival contentions and carefully gone through the orders of the authorities below. 15.From the record, we found that scrutiny assessment of assessee was carried out by the AO vide order dated 22/09/2008, wherein full information with regard to the entire purchase was called for and filed by the assessee. The same was also verified by the AO and thereafter scrutiny assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the movement of its goods is controlled and customs approved; that the purchases being approved purchases, there was no question of their being bogus purchases. The assessee enclosed the custom approved invoices in respect of purchases from Zalak Impex. These invoices have been produced before us also, in the paper book filed by the assessee. As per these invoices, the goods purchased had been verified and approved by the Customs Authority. This clearly shows that the goods had actually been purchased and received by the assessee. As such, these purchases could not have, by any stretch of imagination, been treated as bogus purchases. It is also noteworthy that the payments made by the assessee to Zalak Impex were through account payee cheques only. Neither of the Taxing Authorities, however, took these invoices into consideration and wrongly held the assessee's purchases from Zalak Impex to be bogus purchases. Nothing has been brought on record to show that these invoices were self made or fabricated. Moreover, the comparative chart of purchases made during the year and the selling price (page 141-144), as filed before the ld. CIT(A) has not been refuted and this also goes to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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