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Shantivijay Jewels Ltd vs. DCIT (ITAT Mumbai)
April, 23rd 2018

Bogus Purchases: The fact that the supplier admitted to issuing bogus bills does not necessarily mean that he had issued accommodation bills to the assessee. There is subtle but very important difference in issuing bogus bills and issuing accommodation bills to a particular party. The difference becomes very important when a supplier in his affidavit admits supply of goods. As far as sales are concerned there is no doubt about the genuineness of such sales. It is also a fact that suppliers were paying VAT and were filing their returns of income. In response to the notices issued by the AO u/s 133(6) of the Act, the supplier admitted the genuineness of the transaction. Accordingly, the purchases cannot be treated as bogus

(i) Assessee-company,engaged in the business of manufacturing of jewellery,filed its return of income declaring the total income of Rs.60.56 lakhs.During the assessment proceedings,the AO called for details /evidences of purchases from three parties namely (i) M/s. Aadi Impex; (ii) M/s. Kalash Enterprises and (iii) M/s. Maniprabha Impex Pvt Ltd,which all essentially were controlled and managed by Rajesh Jain Group. He observed that Dharmichand Jain (DJ)had admitted,during the search and seizure proceedings carried out u/s 132 of the Act,that the group was merely providing accommodation entries.He invoked the provisions of section 133(6) of the Act.All the three suppliers relied on the book entries, bills, bank statements in support of their claim of genuine sales made to the assessee.However, the AO rejected the said explanation and proceeded to make addition of Rs. 14.99 Crores to the income of the assessee.

(ii) During the appellate proceedings, the assessee filed copies of the affidavits of the suppliers and relied on various decisions against the said additions on account of bogus purchases. On hearing the same and after obtaining the remand report of the AO on the said affidavits, he partly allowed the appeal of the assessee.In his order, CIT (A) held that the addition of entire purchases is not sustainable and relied on the jurisdictional High Court judgment in the case of Nikunj Eximp Enterprises (372 ITR 619).He further held that restricting the addition to 12.5% of the said purchases was reasonable.He relied on the Gujarat High Court judgment in the case of Simit P Sheth (356 ITR 451)in this regard.Thus, he confirmed the addition of Rs. 1,75,04, 222/- being 12.5% of Rs. 14,00,33,775/- and deleted the balance of Rs. 12,25,29,553/-.

(iii) Aggrieved with the said decision of CIT (A), the assessee filed appeal before the Tribunal with regard to bogus purchases. While deciding the appeal the Tribunal restored back the issue of bogus purchase to the file of the AO for fresh adjudication.As stated earlier,the issue of bogus purchases has been recalled by the Tribunal.

(iv) During the course of hearing before us, the Authorised Representative(AR)stated that the assessee was exporting jewellery, that it had no local sales during the year under consideration, that all the necessary documents to prove the genuineness of the transactions were produced during the assessment proceedings, that the payments were made through banking channels, that the supplier had confirmed the transactions during the remand proceedings, that they were assessed to income tax.He referred to pages 9, 24, 64 and 109 of the paper book. He relied upon the case of Smt. Romila M. Nagpal (ITA/6388/Mumbai/2016-AY.2009-10,dated 17/03/17).The Departmental Representative (DR) stated that one party did not appear.

(v) We have heard the rival submissions and perused the material before us.We find that the assessee is engaged in the business of manufacturing of studded gold jewellery and plain gold jewellery,that during the year under consideration it had exported its manufactured goods,that it did not sell goods locally, that the AO had not doubted the sales, that the suppliers had appeared before the AO and admitted that they had sold the goods to the assessee,that they had filed affidavits in that regard.We find that DJ had admitted of issuing bogus bills.But,nowhere he had admitted that he had issued accommodation bills to the assessee.In our opinion,there is subtle but very important difference in issuing bogus bills and issuing accommodation bills to a particular party.The difference becomes very important when a supplier in his affidavit admits supply of goods.In this matter, the assessee had made no local sales and goods were exported,as stated earlier.So,as far as sales are concerned there is no doubt about the genuineness of such sales.It is also a fact that suppliers were paying VAT and were filing their returns of income.In response to the notices issued by the AO,under section 133(6) of the Act, the supplier had admitted the genuineness of the transaction.Here,we would like to refer to order of the Tribunal in the case of Romila M. Nagpal (supra),wherein in the similar circumstances,addition confirmed by the FAA were deleted. In that order,the tribunal had referred to the case of M/s. Imperial Imp & Exp.(ITA No.5427/Mum/2015 A.Y.2009-10).

(vi) Considering the above,we are of the opinion that the FAA was not justified in partially confirming the addition.The assessee has proved the genuineness of the transactions and the parties suppliers had not only appeared before the AO but they had also filed affidavits confirming the sale of goods.Therefore, reversing his order, we decide first effective ground of appeal (GOA) in favour of the assessee.

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