Carat Wise Stock Maintenance is Sufficient Compliance to Genuine Purchases in Diamond Trade :ITAT Deletes Addition [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition holding carat wise stock maintenance was sufficient compliance to prove genuine purchases in diamond trade.

The Assessee, Asian Star Company Ltd. was a company engaged in the business of trading, manufacturing, import and export of diamonds.

An information was received from the Investigation Directorate surat that the assessee company had made bogus payment of ₹ 10.32 crores to  R A Distributors private limited and  Ram Shyam exports private limited which were paper companies without having any business activities.

These companies were engaged in providing accommodation entries or sending bogus foreign remittances to entities based in Hong Kong and UAE in the guise of bogus import purchases.

Accordingly the assessment order under Section 143 (3) read with Section 147 of the Income Tax Act, 1961 was passed on 30/12/2019 making the addition of Rs. 116,624,231 with respect to the purchase transaction and disallowance of commission expenditure.

Suchek Anchaliya, on behalf of the assessee submitted that the goods purchased from the purchase parties had been sold systematically and quantitative tally thereof was given in the tax audit report under Section 44AB of the Income Tax Act and the quantity perfectly tallies with books of accounts

Hail ja Rai, on behalf of the revenue submitted that the assessee could not show any proof of delivery. He further submitted that one-to-one mapping shown by the assessee was not correct for the reason that in the purchase bills of these parties there was no narration with respect to the quantity i.e. number of diamonds as well as the colour et cetera.

The two-member Bench of S PRASHANT Maharishi, (Accountant Member) and Kavitha Rajagopal, (Judicial Member) relied upon the Bombay High Court decision in Sundram gems Private Limited which categorically held that in case of Diamond trade, carat wise stock maintenance would be the sufficient compliance and therefore, the assessee could not be further burdened to show the colour and number of diamonds.

The Bench also held that the alleged bogus purchases show gross profit higher than the regular gross profit shown by the assessee, no further addition was required to be made in the hands of the assessee and the amount invested in acquiring the bogus purchases should also be considered as an addition, because the only addition was disallowance of bogus purchases, no further addition was warranted.

To Read the full text of the Order CLICK HERE

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