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TMI Blog2017 (11) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ,380/- and ₹.11,180/- received for the Assessment Year 2008-09 and 2013-14 respectively and compute the income accordingly. - ITA.No.4449/MUM/2016, ITA.No.6798/MUM/2016, ITA.No.6800/MUM/2016, ITA.No.4379/MUM/2016 And ITA.No.5868 to 5871/MUM/2016 - - - Dated:- 30-10-2017 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER For The Assessee : Shri Mani Jain For The Revenue : Shri Omi Ningshen ORDER PER C.N. PRASAD (JM) 1. These appeals are filed by the assessee and Revenue. Assessee filed appeals for the Assessment Years 2007-08, 2008-09, 2010-11, 2011-12 and 2013-14. Revenue filed appeals for the Assessment Years 2007-08, 2008-09 and 2011-12. Appeal for the Assessment Year 2007- 08 is against the order of the Ld.CIT(A) -10 dated 14.03.2016 and the appeals for the Assessment Year 2008-09, 2010-11, 2011-12 and 2013- 14 are against the common order passed by the Ld.CIT(A)-10, Mumbai dated 30.08.2016. 2. The assessee in all its appeals challenged the order of the Ld.CIT(A) in restricting the disallowance of purchases to 4% for the Assessment Year 2007-08 and 3% for the Assessment Years 2008-09, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the Directors/Proprietors of the supplier companies/firms have deposed on oath that all the concerns controlled and managed by them are not doing any real trading in diamonds but indulged in paper transaction only, the Assessing Officer rejected the submissions of the assessee that the purchases made from these entities are genuine. The Assessing Officer stated that the statement recorded form Shri Rajendra Jain, Shri Surendra Jain, Shri Bhanwarlal Jain and Shri Dharmichand jain clearly established that all the concerns controlled and operated by them are not carrying out any genuine business activity. 4. It was also observed by the Assessing Officer that the report received from the office of the DGIT (Investigation) during the course of post search inquiries the modus-operandi followed by the group concerns have been accepted by the key persons in the group. Even during the post search enquires Shri Rajendra Jain, Shri Surendra Jain, Shri Bhanwarlal Jain and Shri Dharmichand Jain admitted the fact that they are engaged in paper transaction only without any physical stock of the goods in the name of their numerous concerns they import rough and cut and polished diamonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT v. Bholanath Polyfab Pvt. Ltd. [355 ITR 290] and CIT v . Simit P. Seth [356 ITR 451] and accordingly he estimated the profit element in the purchases at 4% for the Assessment Year 2007-08 and 3% for the Assessment Years 2008-09, 2010-11, 2011-12 and 2013-14. 6. Before us the Learned Counsel for the assessee submits that assessee is into 100% export of diamonds and the addition was made only based on the admission of Shri Rajendra Jain, Shri Surendra Jain, Shri Bhanwarlal Jain and Shri Dharmichand jain in the course of search and seizure proceedings and since all its sales are exports against H Form and since the parties have confirmed that the transaction have entered into by the assessee are genuine the purchases cannot be treated as non-genuine, especially since sales are not disputed and they have accepted. 7. Ld.DR vehemently supported the orders of the Assessing Officer. Ld.DR further submits that as per the CBDT instructions profit margin for the diamond trade is 6% and therefore at least 6% is to be estimated as the profit element from these purchases following the CBDT Instructions. 8. We have heard the rival submissions, perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made any sales except the bogus invoices issued in their name, the AO has brought to-lax the entire bogus purchases standing in the names of the so-called sellers u/s 69C of the Act as the explanation given by the appellant was not satisfactory. The argument of the appellant was that unless the AO proves positively that the material was not delivered to the assessee and the payment made through the Bank channels have been bogus or the amounts paid in the names of the suppliers have come back to the purchaser-assessee, the AO cannot make any addition u/s.69C. Further, as the AO has not doubted the sales disclosed by the appellant he has to allow the purchases since there cannot be any sales without the purchase of the material. The only possibility is that the appellant might have inflated its purchases by incorporating the invoices in the names of the bogus suppliers. The presumption is that the material might have been purchased from grey market at a lower rate and made good the entries with bogus bills to reduce the profits. Under similar circumstances the Hon ble High Court of Gujrat in the case of Simit P Seth, 2013 (356 ITR 451) had an occasion to deliver its judgment by conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of no relevance as the threat, duress and coercion under which the statements were alleged to have been recorded was not established by them. Even though there are catena of cases relied on by the appellant, including some of them delivered by the jurisdictional ITAT, which have decided the issue in favour of the assessee, they are not uniform in all the cases as they were decided as per the facts and circumstances of that particular case before them. I am of the opinion that the theory laid down by the Hon'ble Gujrat High Court in the case of Simit P Seth (supra.) should be applied in the instant case. The decision rendered by Gujarat High Court in the above case is on the basis of VAT benefit the appellant might have saved by taking accommodation entries. However, in the diamond trade the benefit of VAT saving is not that high. In the case of diamond business, the VAT charges are only 1% and the customs duty on import is about 2%. Keeping in view the above tax rates the intention of the assessee to save from the transaction should be viewed only to the extent of saving from the above taxes by indulging in unethical practice of taking accommodation entries. It is also perti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has rightly concluded that the assessee has obtained only bogus bills and assessee might have purchased goods in gray market. The Assessing Officer estimated the Gross Profit Margin on such purchases at 8% which the Ld.CIT(A) reduced to 4% taking note of the report of the Task Group for Diamond Sector submitted to the Department of Commerce observing as under: - 4.2. The A.O called upon the appellant to establish the genuineness of the purchases. The AO noted that the concerns from whom purchases were shown did not have documents to prove the delivery of goods of the appellant. The concerns from whom purchases were claimed to be made were operating from premises which were in the name of Bhanwarlal Jain Family. The suppliers/ bogus parties could not be produced before the A.O for examination. The A.O therefore concluded that the appellant had merely received bills but not the material/goods from these parties. Though the appellant had shown corresponding sales against the purchases claimed, purchases were most likely made from grey market. Without bill and to adjust these transactions, bogus bills were obtained from Bhanwarlal Jain Group. The A.O concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere VAT is levied, the same is refunded subsequently after export of diamonds. The appellant relied on the decision of the Hon'ble ITAT in the case of Say India Jewellers in ITA No.6735/Mum/2010 stating that no addition should be made. 4.4. I have considered the submissions of the appellant carefully. In the face of categorical denial by the alleged suppliers of diamonds of any real supply of goods, and the appellant's inability to establish the facts to be otherwise, the disallowance of purchases is clearly in order. The action of the assessing officer of disallowing a percentage of impugned purchases is in line with the view expressed in the decisions such as in the case of CIT vs. Bholanath PolyFab Pvt. Ltd. (2013) 355 ITR 290 and thereafter in the case of CIT vs. Simit P. Sheth (2013) 219 Taxman 85 (Gu]. 4.5. It is noted that there is nothing distinguishable to identify the sales as corresponding to the purchases. However, the submission that the margin on trading in polished diamonds is low is supported by the report of the Task Group for Diamond Sector submitted to Department of Commerce in which it was reported that net profit in diamond manufacturing is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. 13. The Ld. DR strongly placed reliance on the orders of the lower authorities. 14. We have heard the rival submissions, perused the orders of the authorities below. A similar issue was came up before the Hon'ble Punjab and Haryana High Court in the case of Principal Commissioner of Income Tax I Vs. M/s Empire Package Pvt. Ltd in 415 of 2015 dated 12.01.2016 and the Hon'ble High Court dismissed the appeal of the Revenue holding that there is no substantial question of law arise in the appeal on the following question raised by the Revenue: - Whether in the facts and circumstances of the case, the Hon'ble ITAT is justified in law to hold that the disallowance made under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule? 15. The Hon'ble High Court affirmed the order of the ITAT in holding that the disallowance u/s. 14A r.w. Rule 8D as worked out be the Assessing Officer is not in accordance with law for the reason that Assessing Officer has disallowed entire tax exempt income and this is not permissible in view of the judgment Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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