3 Section 69C – 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 a case where the assessee has proved the genuineness of the transactions and the suppliers had not only appeared before the AO but they had also filed affidavits confirming the sale of goods, addition cannot be sustained.

Shantivijay Jewels Ltd. vs. DCIT (Mumbai)

Members : Rajendra, AM and Ram Lal Negi, JM

ITA No. : 1045 (Mum) of  2016

A.Y.: 2011-12  Dated:  13.04.2018

Counsel for assessee / revenue: R. Murlidhar /

V. Justin

FACTS 

Assessee company, engaged in the business of manufacturing of jewellery, filed its return of income declaring the total income of Rs.60.56 lakh. 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. 14.00 Crore to the income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) and 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. After obtaining the remand report of the AO on the said affidavits, the 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).  Relying on the decision of the Gujarat High Court in the case of Simit P Sheth (356 ITR 451), he restricted the addition to 12.5% of the said purchases.  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/-.

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. In an order u/s. 254 of the Act, the Tribunal held as under.

HELD  

The Tribunal noted that the assessee engaged in the business of manufacturing of studded gold jewellery and plain gold jewellery, had during the year under consideration exported its manufactured goods, it did not sell goods locally, the AO had not doubted the sales, the suppliers had appeared before the AO and admitted that they had sold the goods to the assessee, and they had filed affidavits in that regard.  The Tribunal found that DJ had admitted of issuing bogus bills.  But, nowhere he had admitted that he had issued accommodation bills to assessee.  The Tribunal held that in its opinion, there is a 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. 

The Tribunal noted that the assessee had made no local sales and goods were exported.  There is no doubt about the genuineness of the 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 had admitted the genuineness of the transaction.  The Tribunal referred to the order in the case of Smt. Romila M. Nagpal (ITA/6388/Mumbai/2016-AY.2009-10, dated 17/03/17), wherein in similar circumstances, addition confirmed by the first appellate authority were deleted. It observed that 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) in which case also the assessee was exporting goods.  After referring to the portions of the decision of the Tribunal in Imperial Imp & Exp., the Tribunal held that the CIT(A) was not justified in partially confirming the addition.  It held that 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.  The Tribunal reversed the decision of the CIT(A) and decided this ground in favour of the assessee.

This ground of appeal filed by the assessee was allowed.