Gujarat High Court
The Principal Commissioner Of Income ... vs Magnifique Gems Pvt. Ltd on 17 January, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 206 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX 1
Versus
MAGNIFIQUE GEMS PVT. LTD.
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Appearance:
KARAN G SANGHANI(7945) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 17/01/2025
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned Senior Standing Counsel Mr. Karan Sanghani
for the appellant.
2. The present Tax Appeal is filed under section 260A of the
Income Tax Act, 1961, by the Appellant arising from the judgment
and order dated 27.10.2023 passed by the Income Tax Appellate
Tribunal (for short "the ITAT"), Surat in ITA No.458/SRT/2023 for
the Assessment Year 2011-12 proposing the following substantial
questions of law:
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1. "Whether on the facts and circumstances of the case and
in law, the Hon'ble ITAT has justified in restricting the
addition made by the AO from Rs. 10,53,02,132/- being
100% to 6% of the bogus purchase without appreciating the
facts that the assessee had failed to prove the genuineness of
the transaction made with the concerns which was identified
as bogus entities completely run by Shri Bhanwerlal Jain".
2. "Whether on the facts and circumstances of the case and
in law, the Hon'ble ITAT has justified in restricting the
addition from 100% to 6% made by the AO ignoring the fact
that Shri Bhanwarlal Jain is engaged in the business of
accommodation entries and hence AO was correct in
concluding that the assessee was a beneficiary of the
accommodation entry in guise of purchase".
3. "Whether on the facts and circumstances of the case in
law, the Hon'ble tribunal is right in giving decision by
restricting the addition to 6% without considering the
judgment of Gujarat High Court in the case of N.K.
Industries Ltd. vs. DCIT in TA No. 240 to 242 of 2003 which
has been upheld by the Hon'ble Apex Court in Special Leave
to Appeal No. 769 of 2017 dated 16.01.2017, wherein the
Hon'ble High Court decided that 100% of purchases from
bogus parties was liable to be added in the hands of the
Assessee, reversing the decision of Hon'ble ITAT to restrict
the addition to 25%".
4. "Whether on the facts and circumstances of the case in
law, the Hon'ble ITAT has justified in restricting the addition
to 6% without considering the judgment of Calcutta High
Court of in the case of PCIT us. Premlata Tekriwal (143
taxmann.com 173) involving similar issue of purchase of
bogus concern to suppress profits wherein the court held
that "since it was established that expenditure was
unexplained/bogus, entire amount of bogus expenditure was
to be added to income of Assessee".
5. "Whether on the facts and circumstances of the case in
law, the Hon'ble tribunal is right in deleting the addition
made by the AO on account of bogus purchase even though
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in the case of Mayank Diamonds Pvt Ltd.(2014(11) TMI
812), the Hon'ble High Court has directed to make addition
at the rate of 5% of the total turnover".
6. "Whether on the facts and circumstances of the case in
law, the Hon'ble tribunal is right in deleting the addition
made by the AO without considering the fact that Shri
Bhanwerlal Jain has admitted in his statement u/s.132(4) of
the given in the course of search and seizure action that,
with M/s Rose Gems private Limited was run by him and the
same was engaged in the business of providing
accommodation entries".
3. The facts are that the assessee is engaged in the trading of
diamonds. The assessment under section 143(3) of the Income Tax
Act, 1961 (hereinafter referred to as 'the Act) was completed against
the assessee on 30.12.2018. Total income was determined to be Rs.
2,49,330/-. The assessment was subsequently reopened on the basis
of the information received from the DIT(Inv.) Surat. In the
assessment undertaken under section 143(3) read with section 147 of
the Act, the income was determined to be Rs.10,55,51,462/- , which
was after making addition of Rs.10,53,02,132/-. The total assessed
income was rounded off to Rs. 10,55,51,460/-.
3.1 The addition in question was made on the ground that certain
accommodation entries were made by the assessee. The
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accommodation entries were stated to have been provided by bogus
companies of one Bhanvarlal Jain group. The Company named
Rose Gems Private Ltd. from whom the alleged bogus purchases
were made by the assessee, was according to the department, a non-
genuine entity, not engaged in actual business of any kind.
3.2 While the Assessing Officer made the addition as above, in
the appeal preferred by the assessee, the Commissioner of Income
Tax (Appeals), passed an order dated 10.05.2023, restricting the
addition to 6% of the purchases amounting to Rs. 66,33,087/-.
3.3 It appears that cross appeals came to be preferred before the
Income Tax Appellate Tribunal against the decision of the Appellate
Commissioner. The Income Tax Officer preferred Appeal No. 458 of
2023, whereas the assessee preferred Appeal No. 389 of 2023. The
Tribunal restricted the addition to 6% of the disputed purchases
shown by the assessee.
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4. Learned advocate for the appellant submitted that the said Jain
group was engaged in providing accommodation entries, bogus loan
and purchases and such purchases were utilised by the assessee and
bogus purchases were made through benami concerns. It was
submitted that no stock was found during the search on the said
Bhanvarlal Jain group. The assessee had shown extremely low
profit of 0.78% of the turnover and a net profit at just 0.02% of the
turnover. It was submitted that all the transactions were
transactions with the entities, which were controlled by the said
Bhanvarlal Jain group.
5. The Assessing Officer noted the contentions of the assessee
that the confirmation, purchase bills, bank statements, stock register
and a copy of the ITR had already been filed. The Assessing
Officer was, however, of the view that transactions were bogus and
merely because they were routed through banking channels, it was
not sufficient to conclude that they were genuine transactions. The
contention of the assessee that he had not dealt with the said
Bhanvarlal Jain group was also negated.
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6. DISCUSSION & FINDINGS :-
The appellate Commissioner took the view that disallowance was
required to be sustained at 6% of the purchase. The Assessing
Officer was accordingly directed to workout the disallowance. The
Commissioner of Income Tax (Appeals), recorded as under:,
"4.1 There is difference in trade in diamonds and that in
Aloo/Pyaz. In vegetable one can say that I bought so many Kgs
and sold so many, the mere mention of quantity would suffice in
the bill. But there is bound to be difference in uncut and cut
diamonds? What difference was there in unpolished and uncut.
diamonds Vs. polished one? Why was it not clear from the face of
the invoice?
4.2 Was it not the duty of appellant to show that the trade was as
per normal commercial prudence or does the appellant want that
I.T. Department should blindly accept the bills and trade which
even on the face appear to be bogus, made up contrived.
4.3 As a result, given the facts and the wholistic perspective as
available, the contention of the appellant can not be accepted.
With reference to CBDT circular, mentioned in the last Notice, the
income is estimated at 6% of the turnover, which is the base at
which the AO would compute the income from business.
5.0 As a result, the appeal is Partly Allowed"
6.1 The disallowance at 100% was made in the assessment order
for the year under consideration to the tune of Rs.10,53,02,132/-,
which was reduced to 6% at Rs.66,33,087/- . Thereafter, the issue
was dealt with by the Appellate Tribunal. The Appellate Tribunal
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endorsed the view taken by the appellate Commissioner. It was
observed that the Assessing Officer failed to consider the evidence
furnished by the assessee.
6.2 Considering the aforesaid, the Income Tax Appellate Tribunal
partially allowed the appeal of the assessee to further reduce the
disallowance to 6%. In so holding, the Tribunal observed in
paragraph No.21 as under,
".......during the financial year under consideration the assessee
has shown total turnover of Rs. 66,09,62,458/-. The assessee has
shown Gross Profit @ 78% and net Profit @ 0.02% (page 11 of
paper Book). The assessee while filing the return of income has
declared taxable income of Rs. 1,81,840/- only. We are conscious
of the facts that dispute before us is only with regard of the
disputed purchases of Rs. 4.34 Crore, which was shown to have
purchased from the entity managed by Bhanwarlal Jain Group.
During the search action on Bhanwarlal Jain no stock of
goods/material was found to the investigation party. Bhanwarlal
Jain while filing return of income has offered commission income
(entry provider). Before us, the Ld. CIT-DR for the revenue
vehemently submitted that the ratio of decision of Hon'ble Gujarat
High Court in Mayank Diamond Private Limited (supra) is directly
applicable on the facts of the present case. We find that in Mayank
Diamonds the Hon'ble High Court restricted the additions to 5% of
GP. We have seen that in Mayank Diamonds P Ltd (supra), the
assessee had declared GP @ 1.03% on turnover of Rs 1.86 Crore.
The disputed transaction in the said case was Rs. 1.68 Crore.
However, in the present case the assessee has declared the GP @
0.78%. It is settled law that under Income-tax, the tax authorities
are not entitled to tax the entire transaction, but only the income
component of the disputed transaction, to 389 &
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458/SRT/2023/A.Y.2011-12 Magnifique Gems Pvt. Ltd. prevent the
possibility of revenue leakage. Therefore, considering overall facts
and circumstances of the present case, we are of the view that
disallowances @ 6% of impugned purchases / disputed purchases
would be sufficient to meet the possibility of revenue leakage. In
the result the ground No. 2 of appeal raised by the assessee is
partly allowed and the grounds of appeal raised by revenue are
dismissed."
7. To us, view taken and the conclusion arrived at by the
Appellant Tribunal are based on material before it and after
analysing the facts and figures available before it, when the Tribunal
thought it fit to reduce the disallowance to 6% from 100%, the
Tribunal had before it the facts which were duly analysed by it.
Therefore, in our well considered view, no interference is called for
in the said conclusion and findings of the Tribunal in the present
appeal.
7.1 Another aspect that has weighed with this Court is that Tax
Appeal No. 674 of 2022 in Principal Commissioner of Income Tax
1, Surat vs. M/s. Surya Impex which came to be decided by the co-
ordinate Bench on 16.1.2023 dealt with the very issue of
accommodation entries provided by the said Bhanwarlal Jain
Group. The group involved in the said case is the same group that is
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saddled with allegations of providing accommodation entries to the
assessee. In M/s. Surya Impex (supra), this Court held in favour of
the assessee. The questions of law involved in the said case were of
the same nature and were in the context of similar facts involving the
very same group.
8. We are therefore of the opinion that the appeal is devoid of
merits and that no questions of law much less any substantial
questions of law arise from the impugned order of the Tribunal. The
appeal is accordingly dismissed.
(BHARGAV D. KARIA, J)
(D.N.RAY,J)
BINA SHAH
