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of <h1>Tribunal partially allows appeal, directs deletion of sales value addition & sustains 3% addition on bogus purchases.</h1> <h3>M/s. Inter Carat Jewellery Pvt. Ltd. Versus ITO 8 (2) (1) Mumbai</h3> M/s. Inter Carat Jewellery Pvt. Ltd. Versus ITO 8 (2) (1) Mumbai - TMI Issues Involved:1. Genuineness of purchases from M/s Zalak Impex.2. Addition of sales value to the total income.3. Opportunity to cross-examine Shri Hiren Raval.4. Estimation of profit element in alleged bogus purchases.Issue-wise Detailed Analysis:1. Genuineness of Purchases from M/s Zalak Impex:The assessee, engaged in the business of manufacturing and selling gold/silver jewelry and trading diamonds and colored stones, was found to have purchased diamonds from M/s Zalak Impex. During a survey, it was revealed that M/s Zalak Impex was not conducting genuine business activities and was merely providing accommodation entries. The Assessing Officer (AO) reopened the assessment, suspecting the genuineness of purchases amounting to Rs. 201.28 lakhs. The assessee furnished purchase bills and payment details but failed to provide delivery challans, stock registers, or other supporting documents. The AO rejected the reconciliation statement and added the entire purchase amount to the total income, citing various case laws. The CIT(A) confirmed the addition.2. Addition of Sales Value to the Total Income:The AO added the sales value of Rs. 10.17 lakhs made to M/s Zalak Impex to the total income. The assessee argued that this addition was unjustified as the sales had already been offered to taxation. The tribunal agreed with the assessee, directing the AO to delete the addition of Rs. 10.17 lakhs.3. Opportunity to Cross-examine Shri Hiren Raval:The assessee requested to cross-examine Shri Hiren Raval, whose statement was used against the assessee. The AO denied this request, considering it invalid. The tribunal noted that the AO relied entirely on Shri Hiren Raval’s statement, which the assessee claimed was self-serving. The tribunal observed that the AO did not examine the invoices and payment details provided by the assessee and denied the cross-examination opportunity, which was a significant procedural lapse.4. Estimation of Profit Element in Alleged Bogus Purchases:The tribunal acknowledged that while the assessee reconciled the purchases and sales, it could not conclusively prove that the diamonds were purchased from M/s Zalak Impex. It was inferred that the assessee might have purchased diamonds from undisclosed parties at possibly lower prices. The tribunal referred to the Task Force Committee's recommendations and various tribunal decisions, suggesting a reasonable profit estimation. Considering the assessee's trading and manufacturing activities, the tribunal directed the AO to sustain the addition to 3% of the value of alleged bogus purchases, meeting the ends of justice.Conclusion:The tribunal partly allowed the appeal, directing the AO to delete the sales value addition and sustain the addition to 3% of the alleged bogus purchases. The Stay Application filed by the assessee was dismissed as infructuous. The order was pronounced on 07.03.2018.
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