Star Brillian Jewellery Ltd. v. Income-tax Officer-5(3)(4), Mumbai
[Citation -2019-LL-0913-109]

Citation 2019-LL-0913-109
Appellant Name Star Brillian Jewellery Ltd.
Respondent Name Income-tax Officer-5(3)(4), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 13/09/2019
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags reassessment proceedings • gross profit margin • interest of justice • hawala operator • hawala purchase • bogus purchase • grey market • bogus bills • peak theory • bogus entries
Bot Summary: The only issue raised by the assessee is against the order of Ld. CIT(A) confirming addition of Rs.11,26,274/- as made by the AO under section 69C of the Act on peak theory basis in respect of bogus purchases. During the course of assessment proceedings, the AO also found that assessee has made bogus purchases from M/s. AVI Exports of Rs.8,27,336/- which is a proprietary concern of Mr. Rajendra Kumar Jain and thus treated the purchases of Rs.17,90,530/- as bogus purchases but addition was made on the basis of peak credit. The AO rejecting the reply of the assessee and the response of the party to 133(6) notices came to the conclusion that the said amount of purchases were non genuine and bogus and consequently made addition on the basis of peak balance theory calculation whereof is given in para 7.3 of the assessment order of Rs.11,26,274/-. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that the transactions of purchase of goods from the 4 suppliers were non genuine as the assessee could not prove the purchases with the necessary evidences and therefore justified the addition made on the basis of peak credit. The Ld. A.R. submitted that the goods purchased by the assessee from these 4 parties were 4 ITA Nos.654, 655, 656, 657, 658 659/M/2018 M/s. Star Brillian Jewellery Ltd. solely treated as bogus on the basis of statement of Mr. Rajendra Kumar Jain recorded during the course of search on him and his associated concerns. The Ld. A.R. submitted that the assessee has filed all the necessary evidences in connection with the purchase of goods. Since we have decided the issue on merit partly in favour of the assessee the other ground raised by the assessee need not to be adjudicated.


IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 Assessment Years: 2007-08, 2008-09, 2009-10, 2011-12, 2012-13 & 2014-15 M/s. Star Brillian Income Tax Officer Jewellery Ltd., 5(3)(4), 809/913, Parekh Market, Room No.565, Vs. 39, JSS Road, 5th Floor, Opera House, Aayakar Bhavan, Mumbai 400004 M.K. Road, PAN: AAACS6220M Mumbai - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Ashok Mehta, A.R. Shri Dipesh Vora, C.A. Revenue by : Shri Chaudhary Arun Kumar Singh, D.R. Date of Hearing : 16.07.2019 Date of Pronouncement : 13.09.2019 ORDER Per Rajesh Kumar, Accountant Member: above titled appeals have been preferred by assessee against common order dated 10.10.2017 of Commissioner of Income Tax (Appeals)-10, Mumbai [hereinafter referred to as CIT(A)] involving common issue which in turn arose out of orders passed by AO . All these appeals are being disposed of by this common and consolidated order for sake of brevity as only issue involved in all these appeals is as regards confirmation of addition by Ld. CIT(A) on peak theory basis qua bogus purchases thereby upholding order of Assessing officer (hereinafter called AO). We shall first deal with ITA No.654/M/2018 for A.Y. 2007-08 first. 2 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. ITA No.654/M/2018 2. ld AR of assessee did not press ground taken against re-assessment proceeding u/s147 of Act and therefore same is dismissed. 3. only issue raised by assessee is against order of Ld. CIT(A) confirming addition of Rs.11,26,274/- as made by AO under section 69C of Act on peak theory basis in respect of bogus purchases. 4. facts in brief are that assessee filed return of income for A.Y. 2007-08 on 31.10.2007 declaring income of Rs.5,60,180/-. assessment was framed under section 143(3) vide order dated 06.05.2009. Thereafter, case of assessee was reopened u/s 147 of Act by issuing notice under section 148 dated 27.03.2014. assessee filed return of income on 31.10.2007 in response to notices issued under section 148. Thereafter, reasons recorded under section 148(2) were supplied vide letter dated 05.06.2014 to assessee. assessee filed objections to reassessment proceedings initiated under section 147 which were also disposed vide order dated 12.12.2014. During course of re-assessment proceedings, AO observed that assessee has entered into bogus transaction of purchases of Rs.9,63,194/- from three parties namely M/s. Moulimani Impex Pvt. Ltd. Rs.35,484/-, M/s. Sun Rs.3,94,027/- and M/s. Vitrag Rs.5,33,328/- aggregating to Rs.9,58,938/-. assessee is manufacturer and trader of diamond jewellery. It is pertinent to note that investigation wing of Revenue found that assessee is beneficiary of bogus purchase transactions by 3 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. group concerns belonging to Mr. Rajendra Kumar Jain as assessee have taken bogus entries from these entities. Thereafter, assessee filed bills, vouchers, sale invoices issued by these parties along with payment details and stock tally. During course of assessment proceedings, AO also found that assessee has made bogus purchases from M/s. AVI Exports of Rs.8,27,336/- which is proprietary concern of Mr. Rajendra Kumar Jain and thus treated purchases of Rs.17,90,530/- as bogus purchases but addition was made on basis of peak credit. AO also issued notices under section 133(6) to these three parties out of which only one party M/s. Moulimani Impex Pvt. Ltd. sent reply to said notice. AO rejecting reply of assessee and response of party to 133(6) notices came to conclusion that said amount of purchases were non genuine and bogus and consequently made addition on basis of peak balance theory calculation whereof is given in para 7.3 of assessment order of Rs.11,26,274/-. 5. In appellate proceedings, Ld. CIT(A) dismissed appeal of assessee by holding that transactions of purchase of goods from 4 suppliers were non genuine as assessee could not prove purchases with necessary evidences and therefore justified addition made on basis of peak credit. 6. Ld. A.R. vehemently submitted before Bench that order of Ld. CIT(A) is wrong as it contained several infirmities i.e. legal as well as factual. Ld. A.R. submitted that goods purchased by assessee from these 4 parties were 4 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. solely treated as bogus on basis of statement of Mr. Rajendra Kumar Jain recorded during course of search on him and his associated concerns. Ld. A.R. submitted that assessee has filed all necessary evidences in connection with purchase of goods. Ld. A.R. stated that these statements which are relied upon by AO for making addition carries no evidentiary value as said statement stood withdrawn by Mr. Rajendra Kumar Jain. Moreover, said statement is not bearing sign of person who has given statement by referring to copy of said statement. ld AR argued that reliance on same by lower authorities is incorrect. Ld. A.R., however, candidly admitted that notice in respect of two parties were returned unserved which were issued by AO under section 133(6) of Act to verify purchases however stressed point that sales out of alleged bogus purchases were not disputed by either AO or ld CIT(A). Finally, Ld. A.R. submitted that in view of said facts, addition as made by AO on peak basis which is also affirmed by Ld. CIT(A) may kindly be deleted. In defence of his argument, Ld. A.R. also relied on certain decisions of co-ordinate benches of Tribunal copies whereof were filed in paper book. 7. Ld. D.R., on other hand, relied on orders of authorities below and submitted that addition has rightly been made on peak basis as purchases were made from hawala operator, his group concerns which could not be verified with any satisfactory evidences. Ld. D.R. submitted that even notices issued under section 133(6) could not be served on two parties namely Sun Diamond & Vitraj Jewells. 5 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. Ld. D.R. also filed written submission citing various case laws to support order of Ld. CIT(A). Finally, Ld. D.R. prayed before Bench that order of Ld. CIT(A) is very reasoned and speaking one and therefore same may kindly be affirmed. 8. After hearing both parties and perusing material on record, we are undoubtedly of view that assessee is beneficiary of hawala purchase entries. Though Mr. Rajendra Kumar Jain retracted his statement but facts remain that he and his associated concerns were only supplying bogus bills for purchases on commission basis. So issue before us is whether addition confirmed by ld CIT(A) as made by AO on peak basis is correct or not. We also note that corresponding sales out of alleged bogus purchases were not disputed. It is also undisputed that in some cases notices issued u/s 133(6) were returned unserved. In such type of cases normally purchases are made from grey market and bills are procured from hawala operators and thus assessee makes saving of VAT charges and other incidental charges. peak theory as applied by ld AO has resulted into unrealistic high profits which are not practically possible. In our opinion in order to assess income or profit element on said bogus purchases percentage is applied depending on nature of trade VAT rate applicable and gross profit margin of assessee. coordinate benches in similar set of facts i.e. diamond industry have applied profit rates ranging from 2% to 6 % depending upon facts of each individual cases. In present case, Ld. CIT(A) has upheld addition made on basis of peak theory affirming total addition made under 6 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. section 69C of Rs.11,26,274/- which accounts for more than 50% of total alleged bogus purchases from concerns related to Mr. Rajendra Kumar Jain. In our view, said addition is excessive and unreasonable and can not be sustained. Since assessee is manufacturer and trader of diamond jewellery it would be reasonable and in interest of justice if purchases are brought to tax @ 4% of alleged bogus purchases. Accordingly, appeal of assessee is partly allowed. Since we have decided issue on merit partly in favour of assessee other ground raised by assessee need not to be adjudicated. 9. In result, appeal of assessee is partly allowed. ITA Nos.655, 656, 657, 658 & 659/M/2018 (Assessment Years 2008-09, 2009-10, 2011-12, 2012-13 & 2014-15) 10. issue involved in these appeals is identical to one as stated above in ITA No.654/M/2018 for A.Y. 2007-08. Therefore, our finding in ITA No.654/M/2018 for A.Y. 2007-08, would ,mutatis mutandis, apply to these appeals as well. Accordingly, appeals of assessee are partly allowed. Order pronounced in open court on 13.09.2019. Sd/- Sd/- (Amarjit Singh) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 13.09.2019. Kishore, Sr. P.S. Copy to: Appellant Respondent 7 ITA Nos.654, 655, 656, 657, 658 & 659/M/2018 M/s. Star Brillian Jewellery Ltd. CIT, Concerned, Mumbai CIT (A) Concerned, Mumbai DR Concerned Bench //True Copy// [ By Order Dy/Asstt. Registrar, ITAT, Mumbai. Star Brillian Jewellery Ltd. v. Income-tax Officer-5(3)(4), Mumbai
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