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TMI Blog2019 (3) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... , 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from the Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises [2014 (7) TMI 559 - BOMBAY HIGH COURT] as upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the supplies were to the government agency. In the present case, the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion, on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to restrict the estimation of the profit at 3% instead of 100% of the total non-genuine purchases when he himself has accepted that these purchases are non genuine as held by AO ? 4. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the AO be restored. 3. Brief facts of the case are as under: The assessee is a Partnership Firm, engaged in the business of 'importer, manufacturer and exporter of cut and polished diamonds'. The return of income for the year under appeal was filed on 30-10-2007, declaring total income of ₹ 2,49,38,867/-. The assessment was completed u/s 143(3) of the Act at total income of ₹ 2,49,38,870/-. Thereafter the case was reopened u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n their own hands/books of accounts. Post search investigation reveals that the assessee has taken accommodation entries in the form of bogus purchases from M/s. Avi Export, M/s. Moulimani, M/s. Sun and M/s Vitrag amounting to ₹ 61,62,619/-, ₹ 64,07,32,488/-, ₹ 50,70,510, ₹ 37,95,507/- totaling to ₹ 5,57,61,124/-. 5. After obtaining the explanations from the assessee, it was seen by the AO that barring the stock register entry and cheques payments, custom appraisal report, no other documents such as delivery challans etc. were produced during the course of assessment proceedings. Hence, AO concluded that the assessee adopted a modus operandi to reduce its true profits by inflating its expenses including purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above-mentioned parties without actually getting the material. However, it is also a matter of fact that the purchases from these concerns have been entered into the stock register and the assessee has shown corresponding sales against the said purchases. This could only mean that the diamonds were bought by the assessee, from grey market without bills and to adjust these transactions into the books of accounts, the appellant obtained bills from Rajendra Jain Group Concerns. In such scenario, on one hand the genuineness of the purchase party is doubted but the genuineness of purchase on a whole cannot be doubted. 6.10 In this case, I find that quantitative details were maintained, Ld. AO not doubted the genuineness of sales, however, hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e always cheaper than the diamonds sourced from the genuine dealer. This is because, the genuine dealer would charge his incidental cost including the whole administrative cost while selling the diamond in the market, whereas the petty dealers in the grey market do not carry such incidental charges on such sales, wherein they are only looking for a quick profit. Secondly, there is always an element of discount in the case of instant cash purchase. 6.15 Hence, the task is to ascertain the additional GP, which the appellant must have earned by purchasing the diamonds from the grey market, than from the regular dealer. This would be the margin, which the petty trader in the grey market offers over the genuine trader. 6.16 Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of justice. Accordingly I direct the AO to restrict the addition @3%, on the total purchases of ₹ 5,57,61,124/- from the four parties as the profit element embedded in such purchases. Grounds raised on this issue are treated as Partly Allowed'. 8. Against the above order, the Revenue is in appeal before us. 9. We have heard the ld. Departmental Representative (ld. DR for short) and perused the material available on record. None appeared for and on behalf of the assessee despite notice sent. The notice sent has returned unserved. Hence, we proceeded to adjudicate the issue by hearing the ld. DR and perusing the records. 10. Upon careful consideration we find that the assessee has provided the documentary evidence for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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