TaxTMI 
TaxTMI 
2022 (7) TMI 691
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Bogus Purchases in the assessment proceedings under section 153 A of the Act. It is submitted that the Appellant had been assessed for the year under consideration and that no proceedings were pending as on the date of search. No addition can be made to the assessed income other than the income determined on the basis of incriminating documents/evidence found during the course of search. Implunged addition made in the proceedings under section 153A of the Act is without jurisdiction and bad in law. 2. The learned Commissioner of Income-tax (Appeals) erred in upholding the addition of Rs. 2,73,76,892/- made on account of labour charges paid to following parties: Rs. 1. M/s. Kamal Diamonds 1,18,15,767 2. M/s. S.R. Diamonds 24,77,128 3. M/s. Vishala Diamonds 1,30,83,997 TOTAL 2,73,76,892 It is submitted that the appellant had furnished full and complete details of labour charges paid to above referred parties. The expenditure is incurred wholly and exclusively for the purpose of business of the appellant as such no disallowance is called for. 4. Apart from that, assessee has raised follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eckoned as 'unabated assessment'. And in case of unabated assessment, addition if any which can be made within the scope of assessment u/s 153A, has to be based on incriminating material found during the course of search. 10. In so far as the addition on account of purchases are concerned, the AO has noted that information was received from the Investigation Wing, Mumbai that in the case of Rajendra Jain Group and other groups, a search and seizure action was carried on 03/10/2013, wherein it was found that certain concerns belonging to such group are engaged in providing accommodation entries in the nature of bogus sales. The AO noted that the assessee company has booked purchases from the following companies:- S.NO. NAME OF THE COMPANIES GROUP 1. Daksh Diamonds Bhanwarlal Jain Group 2. Mohit Enterprises 3. Mukti Exports 4. Nice Diamonds 5. Sun Diam Rajendra Jain Group 6. Aadi Impex 7. Vitraag Jewels 8. AVI exports 9. Moulimani Impex Pvt. Ltd. 10. Nayan Gems Sanjay Choudhary Group 11. Kangan Jewels Pvt. Ltd. Dharmichand Group 11. The AO has mentioned in his order that he issued notice u/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mplete quantity tally of purchases and sale are on record. In order to substantiate transactions with these parties we are enclosing herewith the following further documents/details. 1. Ledger accounts of parties referred to in your notice 2. Purchase invoices confirming purchases of cut and polished diamonds 3. Name, Address and PAN of the broker to these transactions 4. Bank statements reflecting payments made for the purchases 5. Extracts of Stock records to substantiate receipt of goods and corresponding sales 6. Our sales invoice with relevant bank statements confirming receipt of sale proceeds into our bank accounts 7. Statement giving details of Cut and Polished diamonds purchased from alleged parties together with its subsequent movement with reference to sales In view of the above facts it is submitted that the all transactions from alleged parties are genuine and cannot be treated as bogus. Without prejudiced to our submissions it is submitted that goods received under purchases from above referred parties were sold and the entire sale proceeds have been duly accounted for and included in the taxable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... premise, has also stated that the bills of the above concerns are made from this premise itself and all parties are brokered by one person named Shri Palande. Mr. Hitesh Mehta has also stated that the labour is recruited by Rosy Blue India Private Limited and yet a payment is made to these concerns after deducting TDS. Then the money is withdrawn and salary is given to all the employees. Even, books of all these concerns are maintained at this premise. Thus, AO deduced that it is evident that no contractual services are being rendered by the above mentioned concerns and yet payments are being made to these concerns without any service being rendered by them. The same has also been seconded by the statement of Mr. Nirav Shah taken during the course of survey on R.B. Cutters Private Limited. He also issued notice u/s 133(6) to the above mentioned 8 parties which according to him returned 'Unserved'. The assessee company had not made any transaction with Yash Enterprises, Divya Enterprises, Om Sai Enterprises, Shree Sai Baba Enterprises and S.V. Diamonds. The following payments have been made to the other three proprietary firms on account of labour charges:- Sr. No. Name. of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Volume-I, Part-I. A bare perusal of both the statements will confirm that the labour coordinator was Shri Palande. The labour bills used to be prepared on the letterhead of these concerns which used to be subsequently signed by the contractor. The blank signed cheque obtained by the Assessee from the labour contractor was used to issue instructions "to the bank to credit the same in the salary account of the employees." This fact stands confirmed in the aforesaid statement of Mr. Nirav Shah & Mr. Hitesh Mehta and forms part of the search material. Therefore, the Assessee would first make payment of labour charges after deduction of TDS to the bank account of the labour contractor and based on the cheque of the labour contractor, amounts would be transferred from his account directly to the employees account by the bank. Therefore, there was no involvement of cash at any stage and this is also not the case of the Revenue. Neither there is any dispute on the availing of services through the labour contractor nor has the Revenue alleged at any point of time that the payments from the said bank account were not made to the employee's account. The services of the said labour contra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Statement of labour contractor reflecting receipt 207 to 215 237 to 249 337 to 354 Ledger account 148 to 150 250 to 255 370 to 375 Confirmation of account 147 221 to 222 355 Income-tax return of Labour Contractor 144 216 to 219 310 to 335 18. Ld. Counsel further submitted that the above referred information shows that the concerned labour contractors existed during the relevant period and they have provided the necessary services to the Assessee. Since the business with the aforesaid labour contractors have been discontinued from Financial Year 2005-06, their non-appearance before the AO after a period of 8 years thereafter should not lead to any adverse inference being drawn against the Assessee. The discontinuance of the said labour contractor is before the date of search and is independent of the same. 19. With regard to unapproved purchases, Ld Counsel submitted that assessee had purchased diamonds from Vitrag Jewels of Rs. 33,56,044/-. This is out of total purchases made during the year of Rs. 704,80,98,296/-. The said purchases are duly supported by purchase invoices (see page 137). Corresp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under section 133(6) of the Act. This is despite the fact that no such notice was issued to the aforesaid party. In view thereof, even on merits the said addition is not justified. 23. He further submitted that, assuming without admitting that the aforesaid submissions of the Assessee is not accepted by the Tribunal, then, the Assessee submits that the Tribunal in its case for assessment year 2013-14, has held that the addition on this issue should be restricted to 2.5% of the amount of purchases. 24. On the other hand, Ld. DR strongly relied on the observation made by AO and Ld. CIT(A) and submitted that, once the AO has made inquiry u/s 133(6) and none of the parties have responded or assessee could not produce these parties before the AO, then the addition /disallowance made by AO is justified in law. 25. We have heard both the parties and perused the relevant findings given in the impugned order as well as material placed on record. In so far as addition on account of unapproved purchases, it has been brought on record that only purchase which is in dispute is purchases made from Vitrag Jewels of Rs. 33,56,044/-, out of total purchases made during the year of Rs. 704.8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of search conducted after more than 2 years in case of different persons and based on certain information received on 24.03.2014, i.e., in respect of transaction of Rajendra Jain Group of companies. AO has sought to make the impugned addition which cannot be held to be on the basis of any seized or incriminating material found during the course of search of the assessee. Accordingly, the same is outside purview and the addition made u/s 153A is unabated assessment. In view of the judgment of Hon'ble Jurisdictional High Court in the case of Murli Agro Products Ltd vs. CIT 49 Taxmann.com 172 and CIT vs. All Cargo Global Logistics Ltd. 374 ITR 645. Thus, on this ground also, the addition cannot be sustained. 27. In so far as disallowance made to the labour contractor, the assessee company which is engaged in the business of procuring rough diamond from abroad, cutting and polishing it and then exporting the same. For cutting and polishing, the assessee company engaged the labours through various contractors which work from the assessee's premises. The total payment made during the year is more than 45.28 crores. Out of this, the AO has doubted the payment made to three parties (a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, the appellant was able to locate the following records confirming that the Contractors were duly registered with labour authorities and had complied with labour laws including payment of statutory dues such as PF and ESIC: Kamal Diamond; 1. Payroll Register for February 2006 2. Duly acknowledged letters intimating concerned authorities regarding fulfilment of compliances under respective laws and closure of business: a. Letter dated 11-08-2006 filed with Labour Commissioner b. Letter dated 22-05-2006 filed with Director of Factories, c. Letter dated 12-06-2006 filed with Regional Director, ESIC d. Letter dated 10-06-2006 filed with Labour Welfare Fund e. Letter dated 07-03-2007 filed with Asst. Provident Fund Commissioner 3. Letter filed by the appellant dated 03-08-2006 intimating labour authorities for termination of labour contractors and cancellation of registration obtained under labour laws 4. Profession Tax challans paid during FY 2005-06 5. Profession Tax Assessment Order dated 18-05-2007 (Form VI) for FY 2003-04 to FY 2005-06 accepting the returns filed by the company and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. Accordingly, the addition made by the AO on account of disallowance paid to labour contractor of Rs. 2,73,76,892/- is deleted. 31. In the result, the appeal of the assessee for AY 2006-07 is allowed. 32. In AY 2007-08, assessee has raised the following grounds:- 1. The learned Commissioner of Income-tax (Appeals) erred in upholding the additions aggregating to Rs. 34,10,797/- made on account of legal and professional fees and Bogus Purchases in the assessment proceedings under section 153A of the Act. It is submitted that the Appellant had been assessed for the year under consideration and that no proceedings were pending as on the date of search. No addition can be made to the assessed income other than the income determined on the basis of incriminating documents/evidence found during the course of search. Impugned addition made in the proceedings under section 153A of the Act is without jurisdiction and bad in law. 2. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance out of Legal & Professional fees paid to Mr. Shreenijin P.V. amounting to Rs. 9,00,000/- and Ms. Soni K.B. amounting to Rs. 9,00,000/- both aggregating t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed" basis and as such no further addition/disallowance can be made to such income. 35. Thus, in both the assessment years, one issue is with regard to bogus purchase wherein addition has been made by the AO exactly on the similar grounds and reasoning and for this year, he has made the addition on account of purchase of Rs. 40,18,254/- for AY 2007-08 and Rs. 6,27,385/- for AY 2008-09. Thereafter, Ld. CIT(A) has restricted the disallowance to 5% on amount of bogus purchases at Rs. 1,25,47,703/-. In both the assessment years, AO has noted exactly the same facts wherein he has made same name of companies to whom he has alleged that assessee has made bogus purchases. The names of these parties are as under:- S.NO. NAME OF THE COMPANIES GROUP 1. Daksh Diamonds Bhanwarlal Jain Group 2. Mohit Enterprises 3. Mukti Exports 4. Nice Diamonds 5. Sun Diam Rajendra Jain Group 6. Aadi Impex 7. Vitraag Jewels 8. AVI exports 9. Moulimani Impex Pvt. Ltd. 10. Nayan Gems Sanjay Choudhary Group 11. Kangan Jewels Pvt. Ltd. Dharmichand Group 36. However, the AO has given the same reasoning that these parties have....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 40. In AY 2007-08, assessee has raised one additional issue on account of legal and professional fees aggregating to Rs. 18 lakhs paid to Mr. Shrenijin P. V. and Ms. Soni K. B. Assessee has filed the following details before the AO, which are as under:- Particulars Mr. Shreenijin P.V. Ms. Soni K. B. Agreement 98 to 101 135 to 138 Invoices raised by them 102 to 124 139 to 161 Ledger Account 125 to 126 162 to 163 Appellant's Bank Statement 102 to 124 139 to 161 Form 16 A evidencing IDS 127 to 134 164 to 171 41. AO had made the disallowance on the ground that information has been received from the DCIT, CC-1, Ernakulam that M/s Rosy Blue(I) Ltd. has paid a total amount of Rs. 72 lakhs to Shri P. V. Srr4eenijin and Smt. K. B. Sony during AY 2007-08 to 20010-11 as professional fees paid. The year wise break-up of the payment are as follows:- AY 2007-08 2008-09 2009-10 2010-11 Total Amount (in Rs.) 18,00,000/- 24,00,000/- 24,00,000/- 6,00,000/- 72,00,000 42. AO has also referred the statement of Shri Russell Mehta, Director of the assessee company recorded u/s 131 wherein he has stated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id parties have been filed which are not in dispute. Now, whether rendering of the legal services had yielded any result or asking for any proof of any legal advice is immaterial. If there was a proper agreement of retainership for legal advice and for statutory compliances is given to certain professionals for rendering legal services and they have raised the bills and are completely unrelated parties, then disallowance cannot be made on the ground that assessee had not proved any rendering of any legal advice. Assessee has already explained the above reason as to why assessee had sought their engagement. Therefore, such addition is directed to be deleted. 47. In the result, the appeal filed for AY 2007-08 and AY 2008-09 are allowed. 48. In the appeal for the AY 2009-10, assessee has challenged the similar disallowances on account of Legal and Professional fees paid to Mr. Shreenijin P. V. amounting to Rs. 12,00,000/- and Ms. Soni K. B. amounting to Rs. 12,00,000/- both aggregating to Rs. 24,00,000/- for the service availed. Apart from this, assessee has raised following additional grounds:- The learned Commissioner of Income-tax (Appeals) erred in upholding that th....