TaxTMI 
TaxTMI 
2021 (5) TMI 56
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....sessment order u/s 143(3) was passed by AO determining the total income of Rs. 41,22,080/-. Further, the case was reopened u/s 147 of the Act, accordingly notice u/s 148 of the Act were issued and served on the assessee. Vide letter dated 11.04.2014, assessee requested the AO to treat the return filed on 24.10.2007 as return filed u/s 148 of the Act. Further, notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In response, AR of the assessee filed the relevant information as called for. 4. The assessee is engaged in the business of Exporter of Gold ornaments. AO in reference to the search action conducted on Sh. Rajendra Jain Group, Shri Sanjay Choudhary Group and Shri Dharamchand Group of cases by DGIT(lnv.), Mumbai on 03/10/2013 and he noted that Shri Rajendra Jain, Shri Sanjay Choudhary and Dharamchand Jain are some of the entry providers operating in Mumbai, indulging in providing entries in the nature of bogus sales and unsecured loans. AO observed that during the financial year 2006-07 the assessee has entered into transactions to the extent of Rs. 4,60,17,324/- with 3 parties i.e. Ms/ Moulimani , M/s Vitrag and M/s Sun Diam and these parties b....
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....actice that grey market goods are sold at a relatively lower price than in the regular markets. He further observed that it was claimed by the assessee that the material purchased were either sold or were there in closing stock the minimum inflation of the accommodation bills will be equal to gross profit offered by the assessee. In order to fulfill the gap of any revenue leakage and to meet the cause of justice, AO proposed 2.5% of the purchase value as suppressed revenue. Accordingly, he made disallowance of Rs. 11,50,433/-. 8. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and before him, made a detailed submission. Ld. CIT(A) after considering the submission of assessee, deleted the addition of Rs. 2,73,26,775/- and estimated the GP @ 3% of the purchases and partly allowed the appeal of the assessee with the following observations:- 6. All the grounds of appeal are related to the bogus purchase of Rs. 4,60,17,324/- by the appellant. For the sake of convenience, all the grounds of appeal are discussed together. 6.1 The appellant is a firm engaged in the business of export of gold ornaments. The assessee purchases dia....
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....e as non-genuine or bogus. The A.O. has not discharged the onus casted on him. In my opinion, merely based on the statement of a third person without any corroborative evidence will not make the transactions, in question, as non-genuine or bogus transaction. As such, in the absence of any contrary evidence placed on record, the transaction cannot be treated as bogus or paper transaction. 6.3. As far as the question of validity of the transaction, even if some of the transactions entered into by the above parties are found to be not genuine, it does not lead to the conclusion that all the transactions entered into by these parties were bogus or non-genuine including the transactions related to the appellant. There is no evidence brought in the assessment order to prove the above conclusion, by the AO. The reassessment proceedings were wide open and the AO could have carried out independent investigation to prove his argument regarding the bogus or non-genuine transactions. No such investigation has been carried out by the AO. The outcome of investigation carried out in the case of Shri. Rajendra Jain, the conclusions drawn therein cannot be applied ipso facto to all other c....
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....in diamonds, what is the correct profit element embedded in such bogus purchases. In the case of diamond trade, generally the rate of VAT is stated to be charged @ 1% on the purchases made from Mumbai and on the purchases made under Form %H' no VAT is levied due to export commitment and purchases made from Surat also there is no VAT levied. Coming to the profit margin in the trade, the task force group for diamond industry, after considering the BAP scheme, recommended presumptive tax for net profit calculated @2% of trading activity and @3% for manufacturing activity or @ 2.5% across the board. It is also ascertained that the operating profit in case of diamond trading for computation of ALP by the TP wing is consistently in the region of around 1.75% to 3%. In view of the same, considering the profit margin in this sector i.e. around 2 to 3 percent and the taxes saved around 1%, I am of the considered opinion that if the addition is sustained to the extent of 3% of the purchases made, as the profit element embedded in such purchases from the three parties belonging to the Shri. Rajendra Jain Group concerns, that will meet the ends of justice. In view of the same, I direct the....
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....CIT(A) be quashed and that of the A.O. be restored. 6. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. CO Filed by Assessee :- 1. The learned CIT(A) failed to appreciate that reopening of assessment is bad in law as sanction for reopening is obtained in contravention of the provisions of section 151 as same is obtained from Additional CIT instead of Commissioner / Chief Commissioner of Income Tax. 2. The learned CIT(A) erred in restricting addition to Rs. 13,80,520/- i.e. 3% of Rs. 4,60,17,324/- being purchase made from M/s. Moulimani, M/s. Vitrag & M/s. Sun Diam without appreciating that entire purchases were genuine as payment were made through Banking Channels, Suspicious suppliers were produced before A.O. quantity tally was submitted, sales were not doubted and learned Assessing officer made the addition in violation of principles of natural justice and hence, entire addition may be deleted. 3. The respondent craves leave to add, amend, alter or vary the grounds of appeal at the time of or before the date of the hearing. 10. Before us, Ld DR brought to our notice that Ld. CIT(A....
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.... back to the file of Ld. CIT(A) to decide the issue on jurisdiction. However, he brought to our notice page 35 of the paper book which is notice issued u/s 148 of the Act to the assessee in which at point no. 3, it is mentioned that this notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income Tax. 13. Considered the rival submissions and material placed on record. We notice from the record that Ld. CIT(A) has appreciated the whole facts in this case and given clear cut findings. It is finding on record by the AO that the purchases made by the assessee are unverified and falls under the category of bogus purchases and AO proceeded to make disallowance on the basis of presumed cash transaction and applied the peak credit in the case of purchase transaction. We notice that Ld. CIT(A) has correctly came to the conclusion that the correct way of dealing with bogus purchase issue is to estimate the profit margin on such purchases and not adding the entire amount of such purchases when the AO came to the conclusion that it is bogus purchases and by considering the decision of the various courts, AO can only disallow the estimated margin which ass....