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TMI Blog2019 (3) TMI 1652X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Thus the grounds raised by the assessee on merits are allowed. Disallowance towards non-genuine purchases for all the Assessment years in appeal and direct the Assessing Officer to delete the addition/disallowance made towards non-genuine purchases. As deleted the disallowance/addition on merits the grounds raised challenging the reopening of assessment is not adjudicated. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee submits that in the course of the re-assessment proceedings notice u/s.133(6) were issued to the suppliers and the suppliers have confirmed that they have supplied materials, affidavits were filed by the suppliers confirming the supply of materials, payments were made through account payee cheques, suppliers have issued proper invoices, stocks were tallied. All this information though furnished before the Assessing Officer without making any sort of enquiry with the suppliers, merely relying on the investigation report and the statements of the persons of Bhanwarlal Jain Group came to the conclusion that assessee has received only accommodation entries from these concerns without supply of materials. Therefore, he has estimated the income element from such purchases @8%. Ld. Counsel for the assessee submits that, since the parties have confirmed by filing account confirmations and affidavits, stocks were tallied, payments were made through account payee cheques, sales were accepted, there is no justification in treating the purchases as non-genuine from these parties. 6. Ld. Counsel for the assessee submits that the only reason why the addition was made is that the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not provided to assessee and no opportunity was given to cross examine them and this makes the assessment bad in law for violation of principles of natural justice. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE in Civil Appeal No. 4228 of 2006 dated 02.09.2015 held that when the assessment was made on the basis of the statements recorded from third parties and if those statements were not provided nor cross examination was given to the assessee, the assessment order made based on those statement is bad in law. Following the above Hon'ble Supreme Court decision, the Ahmadabad Bench of ITAT in the case of Smt. Sunita Jain & Smt Rachna Sachin Jain v. ITO in ITA.No. 501 & 502/AHD/2016 dated 09.03.2017 quashed the assessment on identical situation. 10. Almost identical issue came up before the Division Bench in the case of M/s. Sejal Exports (India) v. DCIT in ITA.Nos. 3854, 3855, 3856, 3857, 3858, 3859 & 3864 /MUM/2017 dated 04.07.2018, wherein the Coordinate Bench held as under: - "13. We have heard the rival submissions, perused the orders of the authorities below. Assessing Officer required the assessee to prove the genuineness of the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payee cheque is not sacrosanct and it would not make an otherwise non-genuine transaction genuine. This view had also found favour with the Hon'ble Apex Court in the case of M/s.Kachwala Gems, as brought out in the impugned order. It is now proposed to examine whether the appellant has been able to discharge the onus of proving that the purchases amounting to ₹ 16,74,69,611/- made by it from the aforesaid 13 concerns are genuine. It is noticed from the record that the AO treated the aforesaid purchases from 13 parties as bogus or non-genuine not merely on the basis of information received from the Investigation Wing but also because the appellant failed to furnish the purchase orders, delivery challans/ angadia receipts etc. in respect of the said purchases of cut and polished diamonds. The absence of these supporting evidences lent credence to the AO's finding that the purchases shown to have been made by the appellant from aforesaid 13 concerns were nothing but accommodation entries without any actual movement or delivery of goods. 6.3.2 A perusal of the relevant invoices reveals that out of aforesaid 13 concerns of Bhanwarlal Jain Group, many concerns were hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, bogus accommodation bills were obtained from aforesaid 13 concerns. It deserves to be noted that the AO had not rejected the books of account of the appellant because he had no material to doubt the genuineness of sales/ exports made by the appellant. 6.3.3 It is now well-established that in a case where the purchases have been actually made but not from the parties from whom these are claimed to have been made and instead may have been purchased from grey market without proper billing or documentation, only the profit element embedded therein needs to be brought to tax. The estimation of rate of profit must necessarily vary with the nature of business and no uniform yardstick can be adopted. It is well-known that if purchases are made from open market without insisting on the genuine bills, the suppliers may be willing to sell those products at a much lower rate as compared to the rate which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. It is a matter of common knowledge that there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Returns reflecting the sale in their Books of Accounts. Ld.CIT(A) lost sight of these evidences which is crucial in these appeals to decide the genuineness of the purchases. When the parties confirmed that they have supplied the goods to the assessee and recorded the sales in their Books of Accounts, we fail to understand how the Ld.CIT(A) concluded that the purchases have been actually made but not from these parties but they have been made from gray market without proper billing or documentation. In our considered view, when the parties have confirmed the transaction by filing necessary details as was done in this case the purchases cannot be treated as non-genuine. 15. Almost identical issue came up in the case of the M/s. Vama International v. I.T.O (supra) wherein the Assessing Officer treated the whole purchases are non-genuine, Ld.CIT(A) estimated the profit element from that purchases @12.5% the Coordinate Bench considering the evidences on record deleted the estimation made by the Ld.CIT(A) observing as under: - "16. We have heard the rival submissions, perused the orders of the authorities below. In this case the assessments were reopened based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 the parties through cheques and closing stock inventory submitted by the appellant are certain important evidences regarding the purchases made by the appellant that cannot be set aside summarily. Therefore, the conclusion drawn regarding the purchases made from M/s.Daksh Diamonds being entirely bogus, is not justified. 15. In this regard, the ratio was laid down by the Hon'ble High Court of Bombay in the case of CIT v. NikunjEximp Enterprises (P.) Ltd., is very relevant, wherein it was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 alleged bogus purchase, can only be brought to tax. 18. In the case of CIT-1 Vs Simit P. Sheth, ITA no. 553 of 2012, order dated 16.01.2013, while deciding a similar issue the Hon'ble High Court of Gujarat has held that: - "We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 price. The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 during these three Assessment Years. The disallowance/estimation of profit on purchases by treating them as bogus cannot be made only on the statements recorded from third parties, especially when those parties have responded to the notice issued u/s.133(6) of the Act by filing all necessary documents to prove that they have made sales to the assessee. It is also the submission of the assessee that none of the impugned parties have been declared as Hawala dealers or suspicious dealers by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 material to show that they are not true. We notice that the AO did not bring any material on record and he simply relied upon the report given by the investigation wing. As per Ld A.R, the statement given by Shri Bhanwarlal jain is a general statement only. The assessee, as stated earlier, has furnished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents. 12. In view of the foregoing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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