B IN INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI M BALAGANESH, AM ITA No. 2833/Mum/2017 ( Assessment Years 2007-08) B. Vijaykumar & Co. Dy. Commissioner of Income Plaza, 11 t h Floor, Tax, Central Circle 4(2), Mumbai 55 Gamdevi, Mumbai-400 007 Room No. 411, 4 t h Floor, Aayakar Vs. Bhavan, M.K. Road, Mumbai (Appellant) ( Respondent) PAN No. AAAFB0816F Appellant by : Shri Sashi Tulsiyan, AR Respondent by : Ms. N. Hemalatha, DR Date of hearing: 21.08.2019 Date of pronouncement : 21.08.2019 ORDER , PER MAHAVIR SINGH, JM: This appeal of assessee is arising out of order of Commissioner of Income Tax (Appeals)]-52, Thane, [in short CIT(A)], in 2|Page I T s N o . 2 8 3 3 / Mu m / 2 0 1 7 ITA No. CIT(A)-52/DC CC-4(2)/IT-38/2015-16 dated 19.01.2017. Assessment was framed by Dy. Commissioner of Income Tax, Circle- 4(2), Mumbai (in short ACIT/ AO) for A.Y. 2007-08 vide order dated 27.03.2015, under section 143(3) read with section 147 of Income-tax Act, 1961 (hereinafter Act ). 2. only issue in this appeal of assessee is against order of CIT(A) directing AO to restrict addition made by AO being estimating profit percentage at rate of 8 % on bogus purchases. 3. Briefly stated facts are that assessee engaged in business of Manufacturing and exporters of Jewellery. AO received information from DGIT (Investigation), who in turn received information from Sales Tax Department, Mumbai that assessee has made purchases from hawala parties, as listed in hawala dealers by Maharashtra Sales Tax Department who are providing bogus bills of purchase amounting to Rs. 20,61,90,678/- as admitted by these hawala dealers in their deposition before authorities. same reads as under: - Sl. Name of party Amount No. 1. Krishna Diamond Pvt. Ltd. 6,43,36,459 2. Mihir Diamond (Prop. Gautam B Jain) 13,33,34,266 3. Karishma Diamonds Pvt. Ltd. 85,19,953 Total 20,61,90,678 4. During course of assessment proceedings and during appellate proceedings, assessee submitted documentary evidences such as payment received against such sales, receipt of material purchases, account payee cheque. According to AO, assessee failed to establish genuineness of purchase and accordingly, he made 3|Page I T s N o . 2 8 3 3 / Mu m / 2 0 1 7 addition of unproved purchase at 8% of 1,64,95,254/- to returned income of assessee. Aggrieved, assessee preferred appeal before CIT(A), who restrict addition at 6% of 1,23,71,440/- by observing in para 18 by following CBDT instruction, as under: - 18. Coming to alternative argument of assessee that rate of profit of 8% was on higher side, it may be clarified that this rate had been applied by AO on basis of BAP, presumptive tax scheme, brought in by Govt. of India for gems and jewellery industries introduced in budget for year 2007-08 and therefore, AO could not be faulted on that account. However, it is gathered that CBDT through instruction No. 2/08 dated 22/02/2008 has revised rate of 8% to 6% in respect of gems and jewellery business. Therefore, considering overall facts of case, I am of view that it will be fair and reasonable to apply rate of 6% following CBDT instruction, as against rate of 8% applied by Assessing Officer. Therefore, corresponding profit assessee on sale of Rs. 20,61,90,678/- works out to 1,23,71,440/-. I would like to clarify that above principle to apply profit rate in respect of bogus purchases where quantitative details are available has been upheld by Hon ble Gujarat High Court in case of Simit P. Sheth in which profit 4|Page I T s N o . 2 8 3 3 / Mu m / 2 0 1 7 rate of 12.5% was upheld by Hon ble High Court in respect of other business/ trade. Therefore, considering CBDT instruction, rate of 6% in respect of Gem/ jewellery business is quite fair and reasonable. Consequently, claim of assessee towards application of rate of 2.5% is rejected as it does not have any sound basis. 19. In view of above discussion, out of total addition of 1,64,95,254/-, amount of Rs. 1,23,71,440/- is upheld and balance amount of 41,23,814/- is directed to be deleted. Consequently, Ground No. 2 is partly allowed. 5. We have considered issue and gone through facts and circumstances of case. Before us, assessee has filed copy of Tribunal order in assessee s sister concern in case of B. Vijaykumar Jewellers vs. DCIT in ITA No. 2835/Mum/2017 vide dated 22.08.2017, wherein Tribunal has accepted restriction of 3% net profit on alleged bogus purchase and for this Tribunal observed in Para 5 as under: - 5. I notice that assessee could not conclusively prove that diamonds were purchased only from concerns stated above, since assessee did not produce those parties before AO. Hence one of possible views is that assessee could have 5|Page I T s N o . 2 8 3 3 / Mu m / 2 0 1 7 purchased diamonds from some other person and could have obtained only bills from above said concerns. There is also possibility; in that case, assessee could have purchased goods at price lower than apparent consideration. task of tax officials was to determine profit element embedded in said purchase. AO has estimated same at 8% and Ld CIT(A) has estimated same at 6%. According to Ld A.R, these diamonds have been exported and hence there will not be much variation in price as prices of diamonds would depend upon quality. There is merit in this submission also. Ld A.R, in alternative, submitted that profit element may be estimated at reasonable rate. I have noticed earlier that assessee has declared transactional margin of 5.61% on sales. Hence, considering these aspects, I am of view that profit estimated by Ld CIT(A) at 6% is on higher side. Accordingly I modify order passed by Ld CIT(A) and direct AO to sustain addition to 3% of value of alleged bogus purchases and in my view, same would meet ends of justice. I order accordingly. 6|Page I T s N o . 2 8 3 3 / Mu m / 2 0 1 7 6. Hence, respectfully following Tribunal decision in assessee s sister concern (supra), we direct AO to restrict net profit at 3% of bogus purchases. 7. In result, appeal of assessee is partly allowed. Order pronounced in open court on 21.08.2019. Sd/- Sd/- (M BALAGANESH) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) , Mumbai, Dated: 21.08.2019 Sudip Sarkar, Sr.PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Asstt. Registrar) , ITAT, Mumbai B. Vijaykumar & Co. v. Dy. Commissioner of Income-tax, Central Circle- 4(2), Mumbai