Star Brillian Vs ITO (ITAT Mumbai)
The assessee, a partnership firm engaged in the import, export, manufacture of diamonds, and dealing in diamond, precious stones, and jewellery, filed two appeals before the Income Tax Appellate Tribunal (ITAT), Mumbai, for Assessment Years (AYs) 2009-10 and 2013-14. Both appeals involved an identical issue and were disposed of through a common order.
The assessee challenged the reopening of the assessment, the estimation of profit at 3% of purchases amounting to ₹9,74,86,964, and the alleged violation of the principles of natural justice. The reassessment was initiated after information received from the Directorate General of Income Tax (Investigation), Mumbai, following search and survey operations in the case of Rajendra Jain and others, alleging that the assessee had obtained accommodation entries through purchases from seven parties. The Assessing Officer (AO) rejected the assessee’s explanation and made an addition equal to 5% of the purchase value. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reopening but reduced the addition from 5% to 3% after considering the purchase and sale records, export documents, invoices, ledger accounts, bank statements, PAN details, income tax returns, and affidavits of the suppliers.
Before the Tribunal, the assessee did not press the challenge to the reopening, leaving only the issue of the addition for consideration. Pursuant to an earlier direction of the Tribunal, Rajendra Jain appeared before the AO and stated that he had retracted his original statement recorded during the search and stood by the retraction. The AO did not accept the retraction and maintained the addition because the remaining parties did not respond to summons. The assessee contended that all documentary evidence establishing genuine purchases had been produced, including invoices, PAN details, income tax returns, confirmations, export documents verified by customs authorities, evidence of foreign remittances, and stock records showing inward and outward movement of goods. The Tribunal noted that these documents were not independently investigated by the AO and held that the retracted statement of Rajendra Jain alone could not justify the addition. It observed that the evidence regarding purchases, exports, and sellers remained uncontroverted. Accordingly, the Tribunal reversed the orders of the lower authorities and directed the AO to delete the addition.
