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TMI Blog2018 (2) TMI 1760X X X X Extracts X X X X X X X X Extracts X X X X ..... hases for all these Assessment Years i.e. 2011-12 to 2013-14 which are under appeal before us. Decided in favor of assessee. - ITA.No.7315, 7316 & 7317/MUM/2016 - - - Dated:- 15-2-2018 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER For the Assessee- Shri Bhadresh K. Doshi For the Revenue- Shri Purshottam Kumar ORDER PER C.N. PRASAD (JM) 1. These appeals are filed by the assessee against the order of the Ld. CIT(A)-33, Mumbai dated 25.10.2016 for the Assessment Years 2013-14, 2012-13 and 2011-12. 2. The assessee in all its appeals challenged the order of the Ld.CIT(A) in sustaining the disallowance of purchases at 12.5% for the Assessment Years 2011-12 to 2013-14. 3. Briefly stated the facts are that, the assessments for the Assessment Years 2011-12 to 2013-14 were reopened u/s. 147 of the Act based on the information received from DGIT(Investigation), Mumbai that the assessee is one of the beneficiaries of bogus purchases made by certain entities operated/managed by Bhanwarlal Jain group which is only a bogus concern. During the course of search, Shri Bhanwarlal Jain has admitted in the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 for the other clients who do not want to show import in their own books. Further these concerns issued bills accommodation entries in a commission to various parties who normally purchases diamonds in cash from undisclosed parties and need bills to show purchases against sales in their account. Further these concerns also provide accommodation entries to unsecured loan against cash. Therefore, the Assessing Officer concluded that the transactions made by these entities managed by Shri Bhanwarlal Jain are only providing accommodation entries to the beneficiaries and assessee is one among such beneficiaries. Therefore, the Assessing Officer concluded that the material was debited against various suppliers have entered into stock register and the assessee has shown corresponding sales against the said purchases debited and this could only mean that the diamonds were brought by the assessee from the gray market without bill and to adjust these transactions into the Books of Accounts, assessee has obtained bills from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years involved. Ld. Counsel for the assessee submitted that none of the submitted documents have been doubted by the lower authorities. The sales made by the assessee included exports as well and thus, many of the purchases made from the impugned parties were exported out of India. Thus, it is submitted that the assessee discharged its onus to prove the genuineness of purchases made by it from the impugned parties. 7. Ld. Counsel for the assessee further submitted that none of the impugned parties have been declared as Hawala Dealers or Suspicious Dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of a statement of a third-party namely Mr. Bhanwarlal Jain. In fact, one of the parties i.e. M/s. Daksh Diamonds has been granted a registration under the new GST Act as well. The Sales Tax Department has not initiated any action against the assessee for disallowance of set-off in respect of VAT paid on the purchases from the impugned parties. 8. Learned Counsel for the assessee further submitted that the AO did not appreciate the fact that the assessee purchased diamonds from the impugned parties and there is a practice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the audited P L Account submitted by them. This fact has also been noted by the AO in his order. 13. The Ld. Counsel for the assessee further submitted that the GP margin earned by the assessee from sale of materials purchased from the impugned parties is comparable with the margin earned from other transactions. The addition @12.5% would distort this position and it would show unrealistic results as mentioned below: Year Overall GP% GP% in other transactions GP% in the impugned transactions GP% after considering addition @12. 5% 2011-12 5.49% 5.15% 5.01% 16.88% 2012-13 6.31% 4.50% 4.66% 16.57% 2013-14 6.32% 3.97% 3.72% 15.85% 14. Thus the Learned Counsel for the assessee submitted that the purchases are not bogus and they cannot be treated as non-genuine. Therefore, pleaded to delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received from the DGIT(Inv.) regarding the default committed by M/s. Daksh Diamonds cannot be taken as the sole basis to treat the entire purchases made from it as bogus or non-genuine. The Assessing Officer has primarily relied on the conclusions drawn by the Investigation Wing on the basis of the statement given before the Income tax authorities and heavy reliance on such statement to treat entire purchases made from the above party as bogus, cannot be held to be justified. The information received from the DGIT(Inv.) was a piece of evidence to initiate in-depth independent investigation on the issue, which the Assessing Officer has not fully carried out. Further full enquiry on the given set of facts and circumstances and without appreciating the evidences submitted by the appellant in respect of the purchases made from the alleged bogus party has remained to be carried out before arriving at the conclusion that impugned purchase debited in the books of the appellant are bogus. 14. It is not the case of the Assessing Officer that the above party i.e. M/s. Daksh Diamonds specifically stated that it had made bogus sales to the appellant. The purchase invoices, payments to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from M/s. Daksh Diamonds. The disallowance of the entire amount of purchases from M/s.Daksh Diamonds would not be logical and would amount to travesty of justice. In my view either the purchases from above mentioned party are over invoiced or the purchases were actually made but not from the said party from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. 17. As of now the issue of bogus purchases has been much discussed and debated by the various courts and tribunals. In many judicial pronouncements on the issue, the courts have taken a consistent view that in case of non-existent parties from whom the purchases are shown to have been made, only pert of such purchases can be disallowed, particularly in the cases where the corresponding sales are not doubted. Alternatively, the profit embedded in such sales against the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommitted no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assesses did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT (2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. KishorAmrutlal Patel. In the result, tax appeal is dismissed. 20. In view of the facts and circumstances and the judicial pronouncements cited above; what can be disallowed or taxed in the instant case of the alleged bogus purchases is only the excess profit element embedded in such purchases shown to have been made from M/s.Daksh Diamonds. The appellant has not placed any evidence on record that the goods were purchased from the above party at arms' length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the submissions made by the assessee, we find considerable force in the submissions not to treat the purchases made by the assessee from the parties as non-genuine/bogus. 18. The reason for treating these purchases as non-genuine /bogus is the statements given by Bhanwarlal Jain group and non-submission of delivery invoices by the assessee. It is the submission of the assessee that the statements given by Bhanwarlal Jain group have been retracted by them subsequently and there is a practice of hand delivery of such precious and light weighing materials like Diamonds is prevailing in the industry. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries. The analysis furnished before us on the Gross Profit margin shown by the assessee also suggest that assessee is consistent in showing overall Gross Profit around 6% in these Assessment Years. The average Gross Profit shown by the assessee stood at 6.04% for these Assessment Years. Therefore even if we go by the submissions of the Ld.DR that the profit element should be estimated at 6% as per the CBDT Circular the assessee has already shown 6.04% of overall Gross Profit d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, we notice that the assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing their replies duly confirming the transactions. The AO has rejected the replies by observing that the replies lacked details and they did not mention about the nature of transactions. In our view, the said observations are vague in nature. On the contrary, a perusal of the affidavits furnished by the suppliers would show that they have confirmed the sales effected by them to the assessee. Further they have also verified and signed the ledger account copies as available in the books of account. When the suppliers confirm that the transactions of sales made by them to the assessee are genuine, that too, in response to the notices issued by the AO u/s 133(6) of the Act during the course of assessment proceedings, in our view, the said replies cannot be rejected without bringing on record any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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