Asian Star Company Ltd Mumbai

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???? ?????? ??????, ??? ?? ???????? ‘?’, ??? ?? ?
IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH MUMBAI

BEFORE SHRI R.C.SHARMA, AM
&
SHRI SANDEEP GOSAIN, JM

???? ???? ??./ ITA Nos.4404 to 4410/Mum/2014

(??????? ??? / Assessment Years :2005-06 to 2011-2012)
ACIT, Central Circle-13, Room Vs. M/s Asian Star Company
th
No.1103, 11 Floor Old CGO Limited, 114/116, Mittal
th
Building (Annex.) M.K.Road, Court, C – Wing, 11 Floor,
Mumbai – 400020 Nariman Point, Mumbai –
400021
?????? ???? ??./?????? ??./PAN/ GIR No. : AAACA 4856 B

(??????? /Appellant) .. (???????? / Respondent)

AND

Cross Objection Nos.196, 198 to 201 /Mum/2015
(Arising out of ITA Nos.4404,4408,4406,4405&4407/M/2014)
(??????? ??? / Assessment Years :2005-06, 2006-07 & 2008-09)
M/s Asian Star Company Vs. ACIT, Central Circle-13,
th
Limited, 114/116, Mittal Room No.1103, 11 Floor Old
th
Court, C-Wing, 11 Floor, CGO Building (Annex.)
Nariman Point, Mumbai – M.K.Road, Mumbai – 400020
400021
?????? ???? ??./?????? ??./PAN/GIR No. : AAACA 4856 B

(??????? /Appellant) .. (???????? / Respondent)

?????? ?? ?? ?? /Revenue by : Shri B.Pruseth
????????? ?? ?? ?? /Assessee by : Shri Rakesh Joshi

??? ??? ?? ????? / Date of Hearing : 30/12/2015

????? ?? ?????/Date of Pronouncement /2016

???? / O R D E R

PER R.C.SHARMA (A.M):

These are the appeals filed by the revenue and cross objection by

the assessee against the order of CIT(A), Mumbai, for the assessment

years 2005-06 to 2011-12.
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2. As common issues are involved in all the appeals, therefore, all the

appeals are heard altogether and now disposed off by this consolidated

order. For the sake of convenience, grounds taken by revenue in ITA

No.4404/Mum2014 for the A.Y.2005-06 are reproduced hereunder :-

(i) “On. the facts and circumstances of the case and in law, The
learned CIT(A) erred in holding that the existence of the parties has
established the genuineness of the transaction irrespective of the
fact that no evidence regarding the movement of the goods was
produced by the assessee. ”

(ii) “Whether on the facts and circumstances of the case and in law,
the Learned CIT(A) was right in holding that the processing charges
paid are genuine on the ground that the assessee produced the
parties, but no documentary evidence regarding genuineness of the
transactions were produced.

(iii) “Whether on the facts and circumstances of the case and in law,
the learned CIT(A) was right in deleting the addition of 1 % on
account of Gross Profit on cash purchase discount holding the
purchases to be genuine. ”

2. The Appellant craves leave to add, to amend and / or to alter any
of the grounds of appeal, if need be.

3. The Appellant, therefore, prays that on the grounds stated above,
the order of the CIT(A)-37, Mumbai may be set aside and that of the
Assessing Officer restored.”

3. Rival contentions have been heard and record perused. Facts in

brief are that a search and seizure action u/s. 132 and survey action u/s.

133A of the I.T.Act was carried out in the case of Asian Star Group on

29/10/10 which was concluded on 27/12/10. The assessee company, the

flagship company of the group, was covered in these search proceedings.

Notice u/s. 153A was issued on 02/09/11, in response to which the

assessee filed its return of income for the A.Y.2005-2006 on 27/09/11

showing income of Rs.30,61,73,892/- which is the same as the original

return of income. Vide order dated 28/03/13 u/s. 143(3) r.w.s. 153A the
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income was assessed at Rs.41,20,72,965/- In this assessment order

addition on account of alleged bogus purchases was made, by computing

the peak at Rs.10,28,17,167/- of sundry creditors. An estimate of the

gross profit addition for purchase discount for cash purchases of

diamonds amounting to Rs.26,98,117/- was computed but it was held that

the same was available for making purchases in cash, and hence no

separate additions was finally made. The AO also made addition of

Rs.29,31,968/- in respect of bogus labour charges.

4. During the course of scrutiny assessment the AO made addition in

respect of purchases which was treated as bogus amounting to Rs.10.28

crores. Para 5 of the assessment order is in respect of this addition. The

AO noted that the assessee company is in the business of trading in

rough and polished diamonds as well as manufacturing of polished

diamonds. The assessee company was “DTC Site Holder”. The assessee

company procures rough diamonds primarily from DTC. The company

gets rough diamonds processed into cut and polished diamonds.

Processing is done in its factory located at Surat as well as through

outsourcing to other contractors. The assessee company also purchases

polished diamonds from local diamond merchants. Some of the diamonds

are sold in a local market and the others are exported. The assessee

company also has a jewellery manufacturing division in which diamond

studded jewellery is manufactured. During the course of search action, a

survey u/s. 133A was carried out at one of the office premises of the

assessee company at Surat. During the course of survey action the
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statement of Shri.Nitin V. Shah, accountant of the assessee company,

was recorded u/s. 131 of the I.T.Act on 29/10/2010 and continued till

30/10/2010. In this statement Shri NitinV.Shah stated that the assessee

company had booked bogus purchase bills from local suppliers in Surat to

the tune of Rs. 4,20,61,76,321/- as per the table given below:

Shri Nitin Shah explained the procedure of “managing the bills” from Surat

for the diamonds shown to have been purchased locally. Shri Nitin Shah

also stated that he could not substantiate the movement of polished

diamonds purchased locally and sent to Mumbai for assortment. He also

stated that he could not prove the purchase of polished diamonds made

locally apart from providing invoice copy. He also stated that there are no

polished diamonds actually sent from Surat to Mumbai. The statement of

Shri Nitin Shah was annexed and made part of the assessment order.

5. Relying on the statement of Shri Nitin Shah, the AO called upon the

assessee to produce supporting documents in respect of transfer of

diamonds from Surat Office to Mumbai Office, the details of parties from

whom diamonds were purchased and diamonds were sold at Surat and
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other relevant details, in his letter dated 28/01/13. The assessee filed its

reply on 11/02/13 giving copies of Jhangads (receipts of courier) for the

movement of diamonds between Surat Office and Mumbai office. name

and address of Angadias, details of insurance, name and address and

PAN of the parties at Surat office was also submitted. The AO then called

upon the assessee to produce the Angadias along with the records

maintained in respect of courier service. The assessee could not produce

any Angadias. There upon the AO called upon the assessee to produce

the purchase parties of Surat before him in his office at Mumbai in the

month of February, 2013 for verification. The assessee could not produce

any of the purchase parties before the AO. Accordingly, a show cause

notice was issued by the AO dated 04/03/13 informing the assessee that

he has not produced the purchase parties nor any Angadias and also

asked to show cause as to why the accounts should not be rejected u/s.

145(3) and the addition be made after calculating the peak of the sundry

creditors in each assessment year. The assessee was asked to show

cause as to why gross profit addition at 1% of the total bill be not added

over and above the gross profit declared. The assessee filed the reply to

the AO on 11/03/13. In this reply the assessee submitted that the

statement of Shri Nitin Shah should not be relied upon since the

accountant was grilled and asked questions not related to his area of work

and job responsibilities. Shri Nitin Shah had no role in respect of sales

and purchase function. These activities are handled by Mr. Niraj Soni and

Shri Vijay Shah, directors of the assessee company. It was submitted that
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the questions and answers were written by the survey party and Shri Nitin

Shah was made to sign such statement through intimidation and coercion.

The correct version and facts are stated in the affidavit of Shri Nitin Shah

dated 01/11/10 which has been submitted to the AO. Subsequently even

on 28/02/13 Shri Nitin Shah has appeared before the AO and confirmed

the correct statement of facts. Shri NeerajSoni and Shri Vijay Shah

managers at the relevant time filed their affidavits explaining the correct

facts. It was submitted that the AO had merely mentioned about this

statement of Shri. Nitin Shah recorded at the time of survey but not

mentioned anything about his retraction immediately after the end of

survey as well as his confirmation of the retraction in the statement

recorded on 28/02/13 before the AO. Complete details of sales and

purchases and stock registers have been submitted. All the payments and

receipts are by way of account payee cheques. No incriminating material

or record was found during the course of search to prove that the

purchases are not genuine purchases. The confirmation letters along with

complete address and PAN of the parties has been submitted. The details

of movement of goods lot wise has been submitted. These purchase

parties are tax payers filing regular returns of income and are also

registered for VAT. The auditors have audited their accounts. The exports

and imports are verified by the Custom Department and the genuineness

has not been doubted by any of the government authorities. The party

who supplies goods may not be available, may not co-operate, but that

does not mean that the goods were not purchased.
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6. The assessee informed the AO that they had made a request to

parties to appear before the AO and also requested the AO to issue

summons u/s. 133(6) or u/s. 131 to compel the parties to produce

themselves and submit the required details to the AO. It was reiterated

that all the purchases and purchase parties are genuine. The AO noted

that the assessee could not produce any purchase party except M/s.

Dimexon Diamonds Ltd. In respect of M/s.Dimexon Diamonds Ltd, the AO

recorded that the Vice President of this company was called upon to

provide documents and proof with respect to movement of diamonds

between M/s. Dimexon Diamonds Ltd and Asian Star Co. Ltd. within 2

days. However, these details were not submitted. The AO recorded that

there was not enough time to issue summons for verification before the

assessment was getting barred by limitation of time. Despite this,

summons u/s. 131 of the I.T. Act were issued to a few parties viz. M/s.

Pokharna Impex Pvt. Ltd., M/s. Anshul Gems Pvt. Ltd, Suyash Gems on

19/03/13 to appear before him on 22/03/13 but they failed to appear

before him. The AO thereafter has made reference to his analysis of the

bank statement based on which he has concluded that the money shown

as payment for purchase of diamonds have come back to the directors

and share holders and beneficiaries of M/s. Asian Star Co. Ltd. The AO

has mentioned that the evidence of retraction was filed with his office on

26/12/12 which is more than two years after the date of search. He has

also recorded that Shri Nitin Shah was cross examined and that Shri Nitin

Shah confirmed his retraction during the cross examination. The copy of
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the cross examination dated 27/02/13 is also enclosed as annexure to the

assessment order. The AO concluded that the affidavit of retraction by

Shri. Nitin Shah was at the behest of the assessee company. The AO

observed that Shri Nitin Shah could not provide any proof that statement

recorded on 29/10/10 was under mental torture and stress. The A.O.

therefore, rejected the retraction filed by Shri Nitin Shah. The information

provided by Shri. Nitin Shah at the time of search was specific in nature

and therefore, cannot be attributed to have been given under pressure.

The AO therefore rejected the books of account of the assessee u/s.

145(3) of the I.T.Act. He thereafter computed the peak of sundry creditors

in respect of the parties which could not be produced for verification on

the basis of their ledger accounts. Lists of parties were annexed to the

assessment order. Peak was calculated as under:

A.Y. Peak of the Year Previous year deduction Actual Addition of peak
(if any)
2005-06 10,28,17,167/- — 10,28,17,167/-
2006-07 8,99,30,625/- 10,28,17,167/- —
2007-08 5,83,26,315/- — —
2008-09 13,61,80,572/- 11,80,87,377/- —
2009-10 23,70,15,018/- 12,74,61,463/- 10,95,53,555/-
2010-11 53,34,32,000/- 23,70,15,018/- 29,64,16,982/-
2011-12 71,32,31,495/- 53,34,32,000/- 17,97,99,495/-

The AO concluded that the purchases of polished diamonds was made in

cash and therefore the peak of such unexplained cash purchases was

added to the total income of the assessee. During the current assessment

year, total purchases considered as bogus is in respect of 14 parties with

purchases totaling Rs 102,12,50,280/-

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7. The AO also made an addition in respect of gross profit as

discussed in para 6 of the assessment order. This addition was made on

the basis that since the polished diamonds were purchased in cash, they

were available at a lower price and the assessee would have received a

discount. The assessee in the reply dated 11/03/13 objected to this view

of the AO stating that there were no cash purchases and 1 % discount is

merely a guess work and conjecture of the AO. The AO did not accept the

reply of the assessee and made an addition of 1 % of total purchases

made in cash over and above the gross profit already declared. An

addition of Rs.26,98,117/- was made @ of 1% of total purchases made in

cash of Rs. 26,98,11,733/-. On the assumption that since the gross profit

will be available for making cash purchases, no separate addition has

been made by the AO.

8. The AO also made addition on account of processing charges

amounting to Rs.29,31,968/-. In this regard, The AO has dealt with this

issue in para 7 of the assessment order. The AO noted that the assessee

had debited processing charges to the tune of Rs. 45,16,25,767/- in the

current year on account of cutting and polishing by labour parties in

respect of the rough diamonds. As per the statement of Shri Nitin Shah

recorded on 29/10/10, the assessee company had debited bogus

processing charges in the assessment year 2008-09 and 2009-10. A list

of such parties was mentioned in that statement. Some of these parties

appear in the current year also. The AO issued notices u/s. 133(6) to

verify these labour processing charges. It is mentioned in the assessment
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order that a large proportion of the. notices u/s. 133(6) were returned

unserved. The inspector was assigned the task of physically serving the

notice and carrying out an independent enquiry. Even after serving of

notice u/s. 133(6) by the inspector of the department, no reply was filed.

The AO called upon the assessee to produce these parties along with the

supporting documents on or before 14/02/13 vide AO’s letter dated

06/02/13. The parties were not produced by the assessee and only copy

of return of income, ledger account and invoices raised was furnished.

The AO issued a final show cause notice dated 04/03/13 to which the

assessee filed a reply on 11/03/13. It was submitted that full details of the

processing charges including names and addresses of the parties,

confirmation of the parties and copies of bills were submitted to the

investigation wing and the same was submitted to the AO also. The

payments have been made by account payee cheques and TDS has

been deducted. The stock of diamonds found in the course of

search/survey tallied with the books of account after accounting for

diamonds lying with the processing parties. It was therefore submitted that

the processing charges were genuine and no addition should be made.

9. The AO noted that not a single party was produced before him who

could confirm that the processing charges were genuine. He concluded

that the processing charges are not genuine and since the books are

rejected u/s. 145(3), he added an amount of Rs. 29,31,968/- as

processing charges treated as non genuine in respect of parties identified

as bogus by Shri Nitin shah in his statement recorded during the course of
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search/survey. During the current assessment year tow parties – Ashish

Exports and Rusabh Diamonds-were considered as bogus processing

charges case. Similar addition on account of purchase and processing

charges were made in all the years under consideration after having

similar observation.

10. By the impugned order, the CIT(A) deleted the addition made on

account of bogus purchases after having following observations :-

“4.9 In the remand report, on merits and as per directions issued by
me, verification has been carried out by the assessing officer in respect of
parties and transactions considered as bogus. The assessing officer has
informed that several parties have appeared before him and confirmed
the transactions. The same has been tabulated in his remand report.
Some objections have been raised by the assessing officer which have
been replied to by the AR as narrated earlier in Para 4.5. and 4.6. of this
order. After examining the additional evidence, the remand report
submitted by’ the assessing officer and the rejoinder filed by the appellant,
further details submitted, the position that emerges is summarized in the
following table in respect of the various parties.

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As tabulated above, in many cases even when the parties appeared
and confirmed the transactions and also furnished details called for
by assessing officer, the AO has found fault and stated in the
remand report that some other details such as VAT registration
details were not submitted. The same have been submitted before
me as narrated in the table above. In the case of M/s Dimexon
Diamond Limited, the Vice President appeared before the assessing
officer during the assessment proceeding and confirmed that they
have sold the goods to appellant with actual delivery of goods and
payment thereof was received through banking channel only. The Ld.
A.O. however still considered the said party in calculation of peak on
the ground that the appellant has not provided the proof of
delivery/movement of goods. In this regard the appellant has
submitted that, in case of diamond trade it is a general practice that
diamond is either delivered through angadiya or delivered
personally in the office of purchase party by their staff, as the
diamond is precious commodity hence it is not feasible to deliver
the goods through courier or transport, hence the parties prefer
delivery of the goods personally. Further the office of M/s Dimexon
Dimaond Ltd is situated at Nariman Point, Mumbai wherein
appellant’s office is also located, hence the delivery of diamond by
the said party to appellant is done personally by their employee and
on the receipt of goods the appellant acknowledge the invoice copy
through company seal. The same acknowledged invoice by
purchaser is considered as a proof of delivery of goods and the
same is general practice in diamond trade and followed by almost
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all the parties in diamond trade. The acknowledged copy of invoice
was submitted to the A.O. during assessment proceeding, therefore
addition of purchase from M/s Dimexon Diamond Ltd on account of
non production of proof of delivery/movement of goods is not
relevant as the party appeared before the A.O. with all relevant
document to verify the transaction and statement was recorded by
the A.O.
4.11. The appellant had submitted the confirmation of M/s
Rapaport India Pvt. Ltd. during the assessment proceeding’s. The
appellant had requested the A.O. to summon all the purchase
parties including M/s Rapaport India Pvt. Ltd. but the Ld. A.O. has
failed to do so and did not even issued any notice u/s 133(6) of the
Act to the said party for verification of transaction. The said
company is a fully owned subsidiary of Rapaport USA and three of
the director of the company are US nationals. Rapaport India Pvt.
Ltd. being a MNC follows the government rules in the true spirit. It is
difficult for the appellant to produce the director of the Rapaport India
Pvt. Ltd in the absence of any puce from the Income Tax
Department in the name of the party. The 100% share holding of the
company is with foreign parties. Mls Rapaport India Pvt. Ltd. is a well
known diamond grading agency in the world. In view of above the
appellant could not produce the party during remand proceeding’s.
From the copy of returns filed with ROC, furnished before me, the
foreign shareholding is borne out. Extracts available on worldwide
web down loaded from Internet was submitted.
4.12. In the case of Polarstar Exports Pvt Ltd., the allegation was that
it had purchased diamonds from M/s Dimexon Diamond Limited and
then sold to appellant company. The Ld assessing officer doubted
the transaction on the grounds that since the appellant had direct
dealings with Mls Dimexon Diamond Limited, there was no reason to
obtain diamonds from this party instead of directly from Mls Dimexon
and hence was of the view that the transaction with this party was not
genuine. Before me it was submitted that the transaction that was
subject matter of appeal was only a very small amount of Rs 45,640/-
in AY 2007-08 and that party, though never accepted that its
transactions were not genuine, may not have carried the matter
further in appeal since the amount was small. The profit from the sale
and purchase is quite small to the tune of less than Rs 50000/:
However, since it had confirmed the transactions with the appellant,
and M/s Dimexon Diamond Limited is also a genuine well known
company, the action of assessing officer in treating the transaction
with this party as not genuine is unjustified. As regards the
transaction with Titan Industries Ltd., it is unreasonable to expect the
appellant to produce this party and it is unreasonable to treat the
transactions as bogus.

4.13. From the details available on record, I find that the appellant
never admitted that it had indulged in any bogus transactions. The
statements recorded at the time of search and after the search
confirm this position. The extracts of these statements are
reproduced below.

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Statement on oath of Shri Vipul Prabodh Shah, aged 43 years, slo
Late Shri Prabodh Shah, on 30-10-2010 u/s. 132(4) of the Income
Tax Act, 1961 during the search proceedings u/s. 132 of I.T. Act,
1961, at the office premises of Asian Star Company Ltd at 114,
th
11 floor, Mittal Court ‘C’ Wing, Nariman Point, Mumbal 400 021 on
30.10.2010.
Q.1 Please identify yourself and confirm that oath has been
administered to you. Please also confirm that you are told about the
consequences of giving false statement on oath.
Ans. I am Vipul Prabodh Shah s/o Shri. Late Prabodh Shah, aged
43 years staying at 601, Devdarshan building, 50 Ridge road,
Mumbai 400 006.
Q.2 Please give details of your occupation and sources of
income?
Ans. I am the Managing Director of M/s. Asian Star Company
Ltd. and I am a director in M/s. Asian Star Diamond
International Pvt. Ltd. and partner in M/s. A Star Exports
(formerly known as M/s. Vipul trading company and Rahil Agencies),
M/s. Jewel Art and M/s. Shah Enterprises. My sources of income
include remuneration from the companies where I am a director,
income from partnership firms, income from other sources such as
dividend and interest from bank deposits and Income from capital
gains. I also get remuneration for advisory activities carried out for an
overseas organization.
Q.3 Please give the details of the business activities of M/s.
Asian Star Company Ltd. and the nature of your duties with M/s.
Asian Star Company Ltd.?
Ans. M/s, Asian Star Co. Ltd. is the diamond trading company site
holder, wherein we import raw materials from DTC, cut and polish
and export the diamonds to various countries. In addition we also
import diamond from various other countries and make local
purchases and sell them both in Indian market and export
market. Our company is also in the business of manufacturing
diamond sudded jewellery.
I am the managing director of this company. I look after total
purchases of the raw materials and financial functions of the
company,
Q.4 During the course of search u/s. 132 of the I.T. Act in the
premises of M/s. Asian Star Co. Ltd. it was found that the company is
hugely including in booking bogus bills with regard to purchase of
diamonds. Give the details of such parties and amounts booked year
wise in last six years.
Ans. We are not engaged in any type of booking bogus bills towards
purchase of diamonds. We get raw materials – rough diamonds and
polished diamonds against every purchase bill we honour.

0.5 I am showing you the statement dated 29-10-10 given on oath by
Shri Nitin V Shah, Accountant of M/s: Asian Star Co. ua., working at
your Surat factory, which is annexed with this statement. In the said
statement he has stated that purchases amounting to
Rs.4,20,61,76,321/- made from F.Y. 2003-04 till date, sales
amounting to Rs.2,31,56;94,873/- made” during F.Y.-2007-08 “and
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2008-09 (except the-month of May 2008) and processing expenses
amounting to Rs·.22,32,49,302 incurred-during F.Y. 2007-08 and
2008-09 are merely book accommodation entries made by your
company, which are not real. Please go through the above statement
and give your explanation.
Ans. Shri Nitin V Shah is only an accountant who passes the book
entries. He is not involved in any business transactions and may not
know the intricacies of each and every transaction directed to be
passed In the books of accounts. I wish to state that all the purchase
decisions are generally’ made by me and they are genuine as stated
by me in the answer to the earlier question. In this regard, I request
you to give me an opportunity to cross examine Sh. Nitin V Shah.’
‘Statement on oath of Shri. Vipul Prabodh Shah aged 45 yrs.old
recorded u/s. 131 of the I.T.Act, 1961 on 01.02.2011 at the Office of
the Dy.DIT(lnv.), Unit-VII 1(3), Room No.323, 3rd Floor, Scindia
House, Ballard Estate, Mumbai-400038 in connection with the search
action u/s. 132 of the I.T. Act, 1961 carried out on 29.10.2010 in the
case of M/s. Asian Star Co. Ltd. and their related group concerns.

“OATH ADMINISTERED”

0.1 Please identify yourself, and confirm that the Oath has been
administered to you and the consequences of giving false statement
are also explained to you?

Ans. My name is Vipul Shah s/o. Prabodh Shah, aged 45 years old,
residing at 601, Devdarshan, 50, Ridge Road, B.G.Kher Road,
Mumbai-400 006. I confirm that the Oath has been administered to
me and the consequences of giving false statement are also
explained to me.

Q.2 What is your educational qualification? Briefly describe your
family.

Ans. I have done B.com. I am married. My family consists of me, my
wife Mrs. Sujata Shah and 2 kids and my mother Mrs. Vimla P. Shah.

Q.3 Please give the details of movable as well as immovable
properties owned by you as well as your family members in India
as well as abroad during the period from 01.04.2004 to till date.

Ans. I am submitting as per Annexure I

Q.4 Do you have any agricultural land in your name as well as you
family members name in India as well as abroad? If so, please give
the details from 01.04.2004 to till date.

Ans. I am submitting as per Annexure 2.

Q.5 Have you advanced and/or taken any loan to/from anybody i.e.
Individual/company/firm etc. during the period from 01.04.2004 to till
date? If so, please provide all the details such as Loan confirmation,
Name & address from/to whom loan taken or advanced along with
their PAN.
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Ans. I am submitting as per Annexure 3.

Q.6 Please give the details of your as well as your family member’s
shareholding in all the concerns in India as well as abroad in which
you as well as your family members are/were the
director/partner/proprietor/shareholder etc. during the period from
01.04.2004 to till date.
Ans. I am submitting as per Annexure 4

Q.7 Please explain in detail the various business conducted by
Asian Star Co. Ltd. and other related entities.

Ans. I am submitting as per Annexure 5.

Q.8 Please explain the relationship of your company i.e. Asian Star

co. Ltd. with the following companies related to Mr. Madanlal Jain

and Sahil Group:

Sr.No. Companies related to Mr.Madanlal Jain and Sahil Group

1. Bright Trading Co.
2. Sevenstar Gems (I) Pvt. Ltd.
3. Arjay Gems Pvt. Ltd.
4. Yukta Exports
5. Sahil Diamonds Pvt. Ltd.
6. Centre Point Gems Pvt. Ltd.
7. Bloomingstar Diamonds Pvt. Ltd.
8. Clair Diamond Pvt. Ltd.
9. Sunraj Gems Pvt. Ltd.
10. Queen Gems Pvt. Ltd.
11. Royal Diamonds Pvt. Ltd.
12. Vardhman Gems Exports Pvt. Ltd.
13. Rough Diamonds
14. Manju Gems
15. Mohit Gems
16. Glorious Diamonds Pvt. Ltd.
17. Cartier Gems
18. Om Trading Co.
19. Sahil Gems (I) Ltd.
20. Diablue Exports Pvt. Ltd.
21. Regent Diamonds
22. Elegant Diamond Co.
23. Diasqua Exports
24. Monarchy Gems
25. Universal Gems
26. Sahil Herbals Pvt. Ltd.
27. Uniquestar Gems (I) Ltd.
28. Alpha Exports (Mr. Hemant Jain)
29. P. Dinesh & Co.( Mr. Kishor Gandhi)
30. Mahavir Exports
31. Siddhi Impex
32. Manav Gems
33. Far East Gems Pvt. Ltd.
34. Manju Gems Pvt. Ltd.
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35. Priyanka Exports
Ans. We have business relationship with the above companies as
per the details being submitted as per annexure 6.

Q.9 It is alleged that whatever rough diamonds you are
importing in the capacity as DTC sight holder, part of it you
are selling in the local market in cash. It is understood that as
per the DTC stipulations you are not suppose to sale the rough
diamonds without polishing. Thus, the allegation is that you are
selling the rough diamonds for a premium at cash in the local market
and totally outside the books. Please explain the process of diamond
business with reference to lot G5 at your Mumbai office, which is
having lot of imported diamonds with relevant records.

Ans. Being the sight holder of the Diamond Trading Company
(DTC) we have never indulged in selling of rough diamonds in
local market in cash. I have given a detailed submission on
17/01/11 explaining the physical flow of diamonds with respect
to G5 lot at Mumbai which are majorly from imports. In the
submission, I have given detailed working of manufacturing
activities their process charge with relevant documents. These
detailed working of manufacturing activities with
supporting evidence shows the entire process and flow of rough
diamonds and how the rough diamonds are converted into cut
and polished diamonds. The various reports and details
submitted by us shows that complete records are maintained for
at every stage for each diamond purchased by us. We have made
payment for import of rough diamonds through proper banking
channels and it is reflected in our books of accounts from all these
details it is very much clear that proper records are maintained
showing movements of goods and rough diamonds – imported
are manufacture and subsequently cut and polished diamonds
exported or sold in the domestic markets. Some rough diamonds
which are not commercially feasibly for production or not capable of
being manufactured are sold. Payment for exports are local sales are
also received through proper banking channels and are properly
reflected in the books of accounts. The details of sale of cut and
polished diamonds for F.Y. 2008-09 along with realization details
also have been submitted to you. From this it is very clear that we
have never sold any rough diamonds in cash in local markets as
alleged. I wish to bring to your kind attention that even during the
course of search no incriminating material was found supporting the
above allegation.

Q.10 I am showing you statement of Shri. Nitin Shah, the accountant
at Surat Branch recorded on 29.10.10 u/s. 131. As per statement he
has confirmed that the Asian Star Group has taken bogus
accommodation bills for purchases. In the answer to question no.24
regarding various supporting documents during last seven years for
transfer of diamonds from Surat to Mumbai and Mumbai to Surat, He
has stated that “no supporting documents for the same and neither
can be produced the names of Angadias to whom the diamonds
have been transferred.” In the answer to question no.26 regarding
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ITA Nos.4404-4410/14
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ensuring of the safety of the transport of the diamonds between
Mumbai and Surat is stated that “Safety cannot be achieved and
actually not required in the case of polished diamonds procured
locally and sent to Mumbai for assortment as there are no polished
diamonds being actually sent from Surat to Mumbai for assortment.”
In answer to question no.27, He further stated that “What are being
actually sent from Surat to Mumbai through Angadias are nothing but
pieces of papers on which stock position as on date of dispatch of
courier is being mentioned. These details have shown in the
Angadias’ records in the form of different Jangad Numbers. But they
don’t contained diamonds but only the details of stock position.” In
answer to question no.29,regarding the purpose of above
transactions he has stated that “actually this entire setup of sending
stock statements from Surat to Mumbai through Angadias is
deployed to cover up the actual diamond which are received from
Mumbai.” Mr. Nitin Shah in answer to question no.31 has explained
the above.

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His year wise details of Sales are as follows:

Financial Year Sale of Polished Diamonds
2007-08 1,03,23,14,083
2008-09 1,28,33,80,790
Total 2,31,56,94,873

Please explain in the above context, why this entire transaction
should not be treated as bogus purchase and added to the total
income of your company M/s. Asian Star Ltd. in the relevant
assessment year. Please explain the above with a study of flow of
diamonds by taking example of Lt SG5 Surat for F.Y. 2008-09 from
purchase to selling stage.

Ans. I wish to submit here that we have never indulged in taking any
accommodation bill from any party. I have submitted detailed
submission on 17.01.2011 along with detailed report of movement of
goods of lot SG5 at Surat for F.Y. 2008-09. I hope it will clear the air
that we have not indulged any bogus billing.

The statement given by Nitin Shah is not to be relied upon since he is
only an accountant and his duty is to enter the transactions in the
books of accounts. He does not know anything about and purchase
and sale activity at Sural. He does not have any power to handle
purchase and sale activity. Mostly these activities are handled by the
directors from Mumbai or person/Persons sent from Mumbai as
representative.

Further, we did not understand his statement about Angadias and
related issues. Since goods are regularly sent from Mumbai to Surat
and Surat to Mumbai through Angadias. Goods are always
accompanied by Jangad. As far as security of the goods are
concerned, these movements of goods through Angadia are covered
under jewelers block policy. We would like to cross examine Nitin
Shah to clarify on the above issues.

Q.11. I am showing you statement of Shri Nitin Shah, the accountant
at Surat Branch recorded on 29/10/10 u/s. 131. IN this answer to
question no. 37 regarding the processing charges for various
financial years like 2007-08 – Rs. 9.66 crores, 2008-09 – Rs. 12.66
crores, he has stated that “the processing expenses for the financial
years 2007-08 & 2008-09 shown to have incurred on polishing the
rough diamonds purchased locally during the said period are not
genuine and merely book entries included in the expenses to deflate
the net profit and consequently the taxable income for the respective
financial years. How the adjustments for the same were made in and
outside the books of accounts are the domain of the knowledge of
the directors of the company”. Please explain.

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Ans: As explained earlier we have not indulged in any
accommodation bills. All our purchases and sales are genuine
transactions. Also I have explained the movement of goods along
with supporting documents. If purchase of rough diamonds and sale
of cut and polished diamonds are genuine transaction, the processing
charges paid for conversion of rough diamonds into polished
diamonds are ought to be genuine. The rough diamonds procured were
issued to outside contractors for job work. The outside contractors
converted the rough diamonds into polished diamonds. Subsequently
the polished diamonds received from manufacturing are sold in local
markets.
We have submitted the labour bills issued by various parties
and also confirmations from all the labour parties with their PAN
confirming the amount of labour charges and payment made to them.
Almost all the parties are assessed to income tax and have their PAN. We
have given complete details of the quantity of rough diamonds
manufactured by each contractor and the quantity of polished diamonds
received after manufacturing and labour charges payable on each such
job work. The payment is made through account payee cheque and is
properly reflected in their bank statement and bank book. The bank
statements reflecting these payments are also submitted by us. We
have even deducted TDS from such job work as per applicable rate.
Some of the parties have also produced lower deduction certificate
issued by different income tax authorities. So, all the labour contractors
are in the records of department and also under control and
supervision of department since their obtaining lower deduction
certificate. We have properly deducted income tax and deposited the
same with the government. We have also produced quarterly TDS return
filed with the department and also produced copy of challans for TDS paid.
When reference to above discussion it is clear that all the processing
charges paid to various parties as mentioned above are genuine. Here
also. We would like to cross examine Nitin Shah to clarify on the above
issues.

Q.14 I am showing you loose papers 1 to 361 as Annexure A13
seized from the Mittal Court – premises during the search operations
u/s. 132 on 29.10.2010. It shows various cash figures on various
dates continuously and seems to be related with Angadias. Please
explain.
Ans. We frequently send goods to our factory in Surat or to other
Labor Contractors for -Manufacturing. These goods are sent through
angadia (courier service). All the parcels ent through angadia are
recorded in this register.
We generally send our goods through the following angadia service
providers:-
• P/M — P. Maganlal
• VIA – Vasantlal Ambalal
• J/A – Jayantlal Ambalal
• N/C – Natwarlal Chunilal
• M/S – Maganlal Shankarlal
• M/M – Madhav Magan
• J/S – Jayantilal Somabhai.
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ITA Nos.4404-4410/14
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The register contains records as per the angadia company
through which the goods are sent. The register shows the date
on which the angadia has been sent, the consignee, and lastly
the insurance value of the couriers.

This insurance value is the value we get from the angadia
company in case they lose or misplace our parcel. Our main
intention of taking this insurance from the angadia company is to
make them more responsible with our parcels. Taking of
insurance from the angadia company makes them handle our
parcels with extra care and precaution. This ensures that our
parcels are properly and timely delivered to the consignee.

For loss of goods we have a jeweller Block Policy which covers
the transfer of goods through angadia. Under this policy our
maximum cover is RS.1 0 crore per incident.’

4.14. It is also seen that the appellant had immediately objected
to the statement given by Shri Nitin Shah and asked for an
opportunity for cross examination, which was never granted.
Further, the assessing officer grilled Shri Nitin Shah in the
statement recorded on 27/02/2013, which is attached to and
made part of assessment order. However, Shri Nitin Shah
consistently reiterated that the statement recorded on 29/30
October 2010 was under coercion and that he had retracted from
such statement. Not a single party, out of the several parties
treated as bogus by AO, have admitted to any bogus transaction
with the appellant. In such circumstances, reliance on statement
of Shri Nitin Shah, which is retracted, without any corroborating
evidence cannot be s

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