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TMI Blog2019 (7) TMI 1951X X X X Extracts X X X X X X X X Extracts X X X X ..... ected rough diamonds are sold in the open market whereas the caps diamonds are sent for manufacturing to diamond polishing factory where they are converted to cut and polished diamonds in various sizes and cuttings. For the assessment years under consideration, the returns of income were filed showing the total income as under:- i) Assessment year 2010-11 - Rs. 16,20,115/- ii) Assessment year 2011-12 - Rs. 27,03,290/- iii) Assessment year 2012-13 - Rs. 16,70,060/- 2.1 The returns of income were initially processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") and the returned income was accepted. Subsequently, the department came into possession of information received from the DIT (Inv.), Mumbai regarding sharing of information in the case of beneficiaries of accommodation entries relating to Shri Rajendra Jain/Dharmichand Jain Group wherein the details about who had taken accommodation entries regarding bogus purchases and sales were shared. As per the information received, it was mentioned that search and seizure operation u/s 132 was carried out in Shri Rajendra Jain/Dharmichand Jain Group which was involved in providing accommodation entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived back by the assessee in cash. The assessee also submitted that Shri Dharmichand Jain had retracted the statement and an affidavit to this effect was also furnished before the Assessing Officer. However, the Assessing Officer did not accept the contentions of the assessee and noted that although it might be true that the assessee had maintained all the records in support of purchases made, since information had been received by the Assessing Officer pursuant to a search conducted in Shri Rajendra Jain/Dharmichand Jain Group of cases, the books of the assessee could not be relied upon. The Assessing Officer proceeded to reject the books of accounts and disallowed the entire purchases u/s 69C of the Act. The purchases disallowed in assessment year 2010-11 amounted to Rs. 1,71,85,026/- Similar disallowances were made in assessment year 2011-12 and 2012-13 wherein the purchases disallowed amounted to Rs. 1,79,87,850/- and Rs. 2,72,62,752/- respectively. 2.3 Aggrieved, the assessee preferred appeals before the Ld. First Appellate Authority for all the three years. The assessee challenged the initiation of proceedings u/s 147 of the Act and also challenged the rejection of books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the Hon'ble Bombay High Court has held in the case of CIT vs. Nikunj Exim reported in 372 ITR 619 (Bom) that addition on account of bogus purchases cannot be made when the books of accounts are not rejected and merely because the suppliers did not appear before the Assessing Officer. It was also submitted that in these group of cases, the Assessing Officer did not issue any notice u/s 133(6) of the Act or summons u/s 131 to the parties from whom the assessee had purchased the goods. Reliance was placed on the judgment of the Hon'ble Gujarat High Court in the case of ACIT vs. Vardhman Exports in Tax Appeal no. 265 of 2008 wherein the Hon'ble Gujarat High Court had held that the disallowance u/s 69C of the Act could be made only where the assessee had not explained the source of expenditure. It was submitted that in this case, the payments had been made through the bank accounts and, therefore, no addition u/s 69C could be made. 3.2 The Ld. AR also submitted that the department has accepted the sales of the assessee and once the sales had been accepted, no addition could be made on account of bogus purchases. It was further submitted that there is no evidence pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and have also perused the material available on record. It is not in dispute that the statement of Shri Dharmichand Jain on which the department has relied while making the impugned additions has been retracted by Shri Dharmichand Jain. This fact has been duly noted by the Assessing Officer but the same has not been given credence by the Assessing Officer. It is also seen that the assessee had filed the following documents before the lower authorities to substantiate the genuineness of the purchases:- purchase invoices from the two parties, confirmation of accounts, affidavit of retraction of statement by Shri Dharmichand Jain, stock statement, cost sheet for the manufactured diamonds lotwise, challans for transfer of the diamonds to the manufacturing department, lot-wise labour charges paid, monthly report of TDS and challans, bank statements reflecting payments made to suppliers, form 3CD showing quantitative details, entries in the purchase book along with daily stock register etc. Apart from this, there is also an affidavit of Shri Dharmichand Jain confirming the transactions along with confirmation of accounts by the two parties and copy of bank statements of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases are held to be genuine. We find the assessee's case identical to a case decided by ITAT Delhi Bench in the case of Haryana Jewelers P. Ltd. vs. ITO (supra) wherein in the same search relating to the same group i.e. Rajendra Jain/Dharmichand Jain group, the purchases made by M/s Haryana Jewellers were held to be genuine and the sustenance of disallowance @ 25% by the Ld. CIT (A) was directed to be deleted. In this case also, the coordinate Bench of the Tribunal has given credence to the retraction of statement by Shri Rajendra Jain as well as the confirmation of the transactions by Shri Rajendra Jain in response to notice u/s 133 (6) of the Act. In the present case, it is undisputed that no notices were issued u/s 133(6) to the two parties from whom the alleged bogus purchases were made and, thus, the Assessing Officer failed to take the enquiry further. Once, the purchases are held to be genuine, no additions can be made. We note that the Ld. CIT (A) has not given any cogent reason for sustaining the disallowance to the tune of 2% except for an observation that it was a possible situation that the assessee could have purchased rough diamonds from a third party in the grey ..... X X X X Extracts X X X X X X X X Extracts X X X X
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