Nirjay Diamond Vs DCIT (ITAT Mumbai)
No Addition for ‘Bogus Purchases’ When Exports, Stock Records and Quantitative Tally Match
The Mumbai ITAT deleted an addition of ₹2.18 crore made by estimating 12.5% profit on alleged bogus purchases from entities linked to the Bhanwarlal Jain Group, holding that the Revenue cannot disregard documented purchases merely on the basis of general investigation reports when the assessee has established a complete trail of goods and exports.
The assessee, a partnership firm engaged in manufacturing and export of polished diamonds and semi-precious stones, had made purchases aggregating to ₹17.42 crore from four parties. Though the Assessing Officer doubted the genuineness of these purchases because the suppliers allegedly figured in the list of accommodation entry providers, the assessee produced purchase invoices, bank statements, stock records, quantitative reconciliations, export invoices, shipping bills, export realization certificates, supplier confirmations and affidavits linking the purchases directly to export sales.
The Tribunal noted that the books of account were never rejected, stock registers were accepted, no discrepancy was found in quantitative records and the corresponding export sales had been fully accepted by the Department. It further observed that no material was brought on record to show that payments made through banking channels had returned to the assessee or that the export transactions were sham. Mere non-appearance of suppliers in response to summons could not override the extensive documentary evidence furnished by the assessee.
The ITAT also found the estimation of profit at 12.5% to be completely ad hoc, particularly when the assessee had already disclosed gross and net profit margins higher than industry norms. Holding that the assessee had successfully discharged the burden of proving the genuineness of purchases and that the Revenue had failed to bring any cogent contrary evidence, the Tribunal directed deletion of the entire addition of ₹2.17 crore.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
