Case Law Details
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.
The appeal related to an addition made at 5% of alleged bogus purchases, which had been reduced to 3% by the CIT(A). The assessee submitted that, in its own case for AY 2014-15 involving identical allegations concerning purchases from the same person, the AO, after reopening the assessment and examining purchase statements, invoices, export documents authenticated by customs authorities, bank statements, stock register, audit report, affidavits, confirmations, and sales records, had accepted the genuineness of the transactions and made no addition.
The Tribunal found the facts for AY 2013-14 to be identical to those for AY 2009-10 and also noted the AO’s acceptance of similar transactions in AY 2014-15. For the same reasons given in the earlier year, the Tribunal allowed the appeal and directed the AO to delete the addition. As a result, both appeals filed by the assessee were allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These are the two appeals filed by Star Brillian, Mumbai (assessee/ appellant) for A.Y. 2009-10 & 2013-14, involving similar issue. Both were heard together and disposed of by this common order.
2. ITA No.1551/Mum/2020 is filed for A.Y. 2009-10, filed against the appellate order passed by the Commissioner of Income-tax (Appeals)-59, Mumbai [the learned CIT (A)] dated 31st January, 2020, wherein the appeal filed by the assessee against the assessment order passed by the Income Tax Officer, Ward 19(3)(4), Mumbai [ the Ld AO ] on 27th December, 2016 under Section 143(3) read with section 147 of the Income-tax Act, 1961 (the Act), was partly allowed. The assessee is in appeal wherein it has challenged the reopening of the assessment and also estimate of profit at the rate of 3% of the purchases of ₹9,74,86,964/-. The assessee has also challenged the violation of the principle of natural justice.
3. The fact shows that assessee is a partnership firm engaged in import, export, manufacturer of diamonds and dealers in diamond precious stone and jewelleries. It filed its return of income on 30th December, 2009 at a total income of ₹26,80,000/-. Subsequently, assessment proceedings under Section 147(3) of the Act was completed on 23rd December, 2011, at a total income of ₹49,28,400/-. Thereafter, survey, search and seizure actions were carried out on 3rd October 2013, by the DGIT, Investigation, Mumbai in case of Mr. Rajendra Jain, Sanjay Choudhury and Dharmchand Group. It was found that Mr. Rajendra Jain, is operating several concerns which are used in providing various accommodation entries, based on search information which was received from DGIT Investigation, Mumbai that assessee had taken accommodation entries of purchases from seven different parties amounting to ₹9,86,03,864/-. Therefore, the case was reopened by issue of notice under Section 148 of the Act on 21st March, 2016, after recording the reasons and obtaining the prior approval. In response to that notice, assessee reiterated the return filed on 30th September, 2009. Various notices were issued under Section 142(1) of the Act as well as under Section 143(2) of the Act. Assessee submitted various details however, the learned Assessing Officer rejected the explanation of the assessee and based on the statement of Mr. Rajendra Jain, made an addition of ₹49,30,193/-, being 5% of the purchase cost of the various entities. The assessment order was passed at a total income of ₹ 98,58,590/- on 27th December, 2016.
4. Aggrieved assessee preferred the appeal before the learned CIT (A), where assessee challenged the reopening of the assessment as well as the addition on merits. The learned CIT (A) dismissed the appeal of the assessee against the reopening of the assessment. However, on the merits assessee submitted that details of purchase and corresponding details of sales against each purchase, copies of the purchase invoices with corresponding sale invoices of the purchases and sale register for the entire year, ledger account of the parties and the copy of bank statement. It was further submitted that sales from the alleged purchases Assessee exported the goods, have been verified by the custom authorities with necessary evidences. The assessee further submitted the PAN, return of income, bank statement and also the copy of affidavit of all the alleged suppliers confirming the goods supplied by them. Therefore, the claim of the assessee is that the addition made by the learned Assessing Officer is incorrect. The learned CIT (A) after considering the explanation held that disallowance of 5% of the purchases is not at all justified. He directed the learned Assessing Officer to make the addition to the extent of 3% only. Thus, the appeal of the assessee was partly allowed. The assessee is still aggrieved with the appellate order and is in appeal before us.
5. The partner of the assessee firm appeared before us, Shri Mehul Shah, and reiterated the facts and stated that there is no question of any bogus purchases at all. He further submitted that in the earlier course of hearing, the coordinate Benches directed on 2nd November, 2023, wherein the assessee was directed to produce Mr. Rajendra Jain before the learned Assessing Officer with all documentary evidences. The learned Assessing Officer was directed to examine the same and also examine the purchases and submit a report on or before 20th December, 2023. Subsequently, on 5th February, 2024, a report was received from ACIT (19)(3), Mumbai, wherein it is stated that summon was issued to Mr. Rajendra Jain with the necessary evidences. Statement of Mr. Rajendra Jain was recorded under Section 131(1) of the Act on 30th January, 2024, wherein Rajendra Jain, stated that he has retracted the original statement made during the course of search and he stand by his retraction. As the retraction statement is not backed by any evidences, the learned Assessing Officer did not believe such retraction. Further, he noted that summons were issued to all the remaining parties on 5th February, 2024, however, none of those parties appeared nor assessee could present them. Therefore, the report of the learned Assessing Officer stands by the addition already made.
6. The learned Authorized Representative submitted that assessee has produced all the necessary details and produced Mr. Rajendra Jain, who confirmed having sold those goods to the assessee. With respect to the purchase assessee has produced complete details therefore, the original allegation of bogus purchases itself does not remain and therefore, the addition deserves to be deleted.
7. We have carefully considered the rival contentions and perused the orders of the lower authorities. Assessee has not pressed the grounds of appeal with respect to the reopening of the assessment. Therefore, now the only issue that remains is whether the addition made by the learned Assessing Officer at the rate of 5% of alleged bogus purchases reduced by the learned CIT (A) at the rate of 3% is correct or not. It is found that assessee was directed by the co-ordinate bench to produce Mr. Rajendra Jain, before the learned Assessing Officer. The assessee has produced him before the learned Assessing Officer which is confirmed by the learned Assessing Officer. In his statement Mr. Rajendra Jain has categorically stated that his original statement given during the course of search has already been retracted by him and he stands by such retraction in the case of this assessee. Therefore, the original addition made by the learned Assessing Officer based on the statement of Mr. Rajendra Jain now does not stand. Now, the issue is to be examined independently of any admission or retraction made by Mr. Rajendra Jain. Admittedly, in this case, the assessee is exporter of diamond. The alleged purchases from the parties which are stated to be bogus by the learned Assessing Officer, assessee has produced their invoices, their permanent account number, their income tax returns, confirmation to show that purchases are genuine. Further, it is the claim of the assessee that whatever goods are purchased by the firm from these parties has been exported. Such export documents are verified and goods are also seen by the customs authority. Against such exports, assessee has already received foreign remittances and such sales are already taxed. The assessee has also demonstrated that the stock register has inward movement of goods of purchase from alleged bogus suppliers and outward movement of such goods as export of diamonds. The evidences produced by the assessee with respect to these parties were not investigated independently by the learned Assessing Officer. However, it is also the fact that the learned Assessing Officer in the remand proceedings issued summons to these parties remained unresponded. However, in view of such overwhelming evidences, only statement subsequently retracted of MR Jain could not be the sole reason of making an addition in the hands of the assessee. Honourable Bombay High court in Nitin Cylinders Ltd[2024] 159 taxmann.com 649 (Bombay) has held that Where Assessing Officer made an addition on account of bogus purchases solely on a statement made by only one party recorded under section 131 without adducing evidence of other necessary parties, Tribunal had was justified in deleting impugned addition. In this case, the learned Assessing Officer had made an addition at the rate of 5% of such purchases, which is directed by the learned CIT (A) to the extent of 3%. We do not find any reason to sustain these additions for the reason that the addition made based on statement of Mr. Rajendra Jain, which was retracted latter on and such retraction is confirmed in further statement before the learned Assessing Officer on the direction of the Tribunal. Further, the evidence submitted on purchase going into export and further details provided of sellers remaining uncontroverted, thus it shows that the addition is not required to be sustained. Accordingly, we reverse the orders of the lower authorities and direct the learned Assessing Officer to delete the impugned addition. Accordingly, the appeal of the assessee is partly allowed.
8. ITA No. 1552/Mum/2020, is filed by the assessee against the appellate order passed by the learned CIT (A) on 31st January, 2020, wherein the appeal filed by the assessee against the assessment order dated 28th March, 2016, passed by the learned Assessing Officer under Section 143(3) of the Act, wherein on alleged bogus purchases, the addition made by the learned Assessing Officer of ₹1,47,66,834/- at the rate of 5% of purchases was reduced by the learned CIT (A) at the rate of 3% of such purchases. The assessee is aggrieved and in appeal before us.
9. The assessee filed the original return of income on 1st October, 2013, at a total income of ₹91,71,238/- which was assessed under Section 143(3) of the Act on 28th March, 2016, at ₹2,39,38,073/-. On appeal, the learned CIT (A) retracted the addition to the extent of 3%.
10. The assessee is in appeal before us having identical facts. It is also stated by the learned Authorized Representative for A.Y. 2014-15 is also on identical facts and circumstances, where LD AO did not make any addition. Such assessment order dated 18/1/2023 passed u/s 147 rws 144 and 144B of the Act was placed before us where in assessment of assessee was reopened to tax bogus purchases from same person of Rs 11.76 Cr, but in the end no addition was made. In that case, detailed show cause notice was issued and explanation of assessee was considered. In explanation of assessee, assessee submitted (1) statement showing purchases from those parties, (2) Copies of purchase invoices and corresponding sales invoices along with export bank statement and export documentation authenticated by customs authorities, (3) Copy of bank statements highlighting purchases paid, (5) Copy of stock register and purchase register, (6) copy of financial and audit report, (7) Affidavit and confirmation of sellers with extract of sales register. Ld AO there in has categorically mentioned that genuineness of transaction appears to be satisfactory despite case of the assessee was reopened wherein identical allegation of bogus purchases was made.
11. On careful perusal of the above facts and for identical reason as we have given in addition for A.Y. 2009-10, and specifically for the reason that in assessee’s own case for AY 2014-15, the ld AO has also categorically accepted the genuineness of the transaction in reopened proceedings with identical allegations and not making any addition, we allow the appeal of the assessee for this year and direct the learned Assessing Officer to delete the addition. In the result, the appeal of the assessee for A.Y. 2013-14 is also allowed.
12. In the result, the appeals of the assessee for both the years are allowed.
Order pronounced in the open court on 15.03.2024.
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