Estimating profit of 3% justified as net profit that prevails in diamond industry ranges b/w 1.5%-4.5%: ITAT

Case Details: Oopal Diamond v. ACIT - [2022] 144 taxmann.com 184 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Vikas Awasthy, Judicial Member & M. Balaganesh, Accountant Member
  • Himanshu Gandhi for the Appellant.
  • Prasoon Kabra for the Respondent.

Facts of the Case

Assessee was a manufacturer and trader of diamonds. A search was carried out in the entities of Shri Bhawarlal Jain and Group wherein it was found that the assessee had made purchases from certain parties who were treated as tainted dealers.

Accordingly, the Assessing Officer (AO) concluded that to save indirect taxes, the assessee made purchases from the grey market. Thus, he estimated the profit element embedded in the value of such disputed purchases at 5%. On appeal, the CIT(A) reduced the additions from 5% to 3%. The matter was reached before the Mumbai Tribunal.

ITAT Held

The Mumbai Tribunal held that the CIT (A) has relied upon the report furnished by the Task Force for Diamond Sector constituted by the Ministry of Commerce and Industry. The report was furnished after considering BAP (Benign Assessment Procedure). In that report, it was recommended by the Task Force that the net profit prevailing range from 1% to 3% for those engaged in the trading of diamonds and 1.5%- 4.5% for those engaged in the manufacturing of diamonds.

Since the assessee was engaged in the business of both trading as well as manufacturing, the CIT(A) rightly estimated the profit percentage at 3%. Thus, Tribunal upheld the order of CIT(A) and dismissed the assessee’s appeal.