TMI Blog2021 (5) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... e are in agreement with Ld. CIT(A) that AO cannot proceed to disallow the whole purchases or applied peak credit in cash transaction. However, we notice that Ld. CIT(A) appreciated to estimate the disallowance @ 3% instead of 2.5% proposed by AO and we observe that the revenue is in appeal objecting the findings of Ld. CIT(A). Therefore, we dismissed the Ground No. 1 raised by the revenue that AO cannot apply any other method other than estimating the disallowance on alleged purchases. CIT(A) has disallowed @ 3% whereas AO has disallowed @ 2.5% alonwith disallowing peak credit on cash transaction. Therefore, in our view, Ld. CIT(A) has proposed 3% is higher than the estimation made by AO. Accordingly, all the grounds raised by the revenue are dismissed. Validity of reopening of assessment u/s 147 - AO has taken sanction only from the then Addl. Commissioner instead of taking permission from Commissioner as per the provision of section 151(1) - HELD THAT:- In our considered view, the violation of section 151(1) of the Act is apparent on record and there is no necessity for this issue to go back to Ld. CIT(A) as submitted by Ld. DR. Respectfully following the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has entered into transactions to the extent of ₹ 4,60,17,324/- with 3 parties i.e. Ms/ Moulimani , M/s Vitrag and M/s Sun Diam and these parties belongs to the above said groups which are indulging in providing accommodation entries. Further AO issued notice to the assessee to provide the details of transactions and submit the copies of ledger accounts. At the same time, notice u/s 133(6) was issued to the above said parties and the same were returned unserved. 5. In response, AR of the assessee provided the copy of ledger accounts, copy of bank statement of the assessee showing the payment for purchases, Quantitative details of diamonds in the stock account of the assessee and confirmations of purchases from the parties mentioned and return of income of the parties and copy of their bank statement of the above said parties. After considering the details submitted before AO, AO observed that the above said concerns with whom assessee has made purchases was operated by Shri. Rajendra Jain group, Shri Sanjay Choudhary Group Shri Dharamchand Group. Accordingly, AO rejected the contentions /submissions made by the assessee. 6. AO heavily relied on the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke of convenience, all the grounds of appeal are discussed together. 6.1 The appellant is a firm engaged in the business of export of gold ornaments. The assessee purchases diamonds from various local parties and exports the same to various parties. During the F.Y. 2006-07 relevant to A.Y. 2007-08, the assessee purchased goods worth ₹ 4,60,17,324/- from M/s Moulimani, M/s. Vitrag and M/s. Sun Diam. During the appellate proceedings, appellant has stated that all payments are made by account payee cheques and amounts received against exports are also by account payee cheques. The Appellant has duly maintained all books of accounts. The Appellant also produced bank statements showing the payment for purchases before the AO wherein the purchases made from M/s Mouiimani, M/s. Vitrag and M/s. Sun Diam are properly reflected. There is a corresponding export against this purchase. Export is routed through proper custom channel and without purchase of actual goods, exports of goods is not possible. There is also total quantitative tally of the stock. Also the appellant has submitted confirmation of purchases from the parties mentioned and return of income of the parties and books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een carried out by the AO. The outcome of investigation carried out in the case of Shri. Rajendra Jain, the conclusions drawn therein cannot be applied ipso facto to all other cases who have dealt in the transactions during that period. Simply relying on the report of the Inv. Wing, Mumbai and statement the AO cannot conclude that all transactions are bogus or have no credential value. 6.4. In this case, AO not has doubted the genuineness of sales, however held that the appellant indulged in non-genuine purchases to suppress the profits and proceeded to add the entire amount of such purchases, instead of making the profit element embedded in such bogus purchase. As stated earlier when the sales are genuine, it is not possible to sell the goods without making any purchases. If the purchases are not made from those parties, the appellant must have purchased from some other parties. In such a situation, adding the entire amount of purchase to the total income is not correct because it will give a distorted picture of the profit margin as stated in the written submissions by the appellant. In my considered opinion, which is supported by several judicial forums, estimating the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the three parties belonging to the Shri. Rajendra Jain Group concerns, that will meet the ends of justice. In view of the same, I direct the AO to restrict the total addition @3% of ₹ 4,60,17,324/- i.e. the purchases made from M/s. Moulimani, M/s. Vitrag and M/s. Sun Diam. These grounds of appeal are therefore partly allowed. 9. Aggrieved with the above order, the revenue and assessee preferred the appeal and CO before us raising the following grounds:- 1. On the facts and in the circumstances of the case, the CIT(A) has erred in law as well as on fact in not sustaining addition u/s 69C of ₹ 2,73,26,7757- on account of Peak Credit of transaction of bogus purchases, after having accepted the finding in principle that the purchases were made from undisclosed/ unverifiable/ unidentifiable parties in the grey market by investing in cash and the purchases shown were only accommodation entries and not actual purchases. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in law as well as on fact in not sustaining addition u/s 69C of ₹ 11,50,433/-being 2.5% of the alleged bogus purchases of ₹ 4,60,17,324/- on account of inflatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds of appeal at the time of or before the date of the hearing. 10. Before us, Ld DR brought to our notice that Ld. CIT(A) applied 3% on bogus purchase and deleted the addition made u/s 69C of the Act on account of peak credit of the transaction of bogus purchases. Even though, he accepted the finding of AO in part that the purchases were made from undisclosed, unverifiable parties in the grey market by investing in cash and the purchase shown were accommodation entries and not actual genuine purchase. Ld. DR objected that Ld. CIT(A) has applied 3% GP in place of 2.5% applied by the AO by deleting the Peak Credit of cash transaction. 11. On the other hand, Ld. AR submitted that assessee has filed CO raising jurisdiction issue in this case that for reopening of the assessment, AO has taken sanction from ACIT instead of Commissioner or Joint Commissioner of Income Tax as per the provision of section 151 of the Act. He brought to our notice page 2 of CIT(A) s order, wherein assessee has raised this ground in the grounds of appeal and page 5 of the said order, assessee has made the detailed submission in this regard. He further brought to our notice page 9 of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is bogus purchases and by considering the decision of the various courts, AO can only disallow the estimated margin which assessee would have enjoyed in such practices of taking accommodation entries. Therefore, we are in agreement with Ld. CIT(A) that AO cannot proceed to disallow the whole purchases or applied peak credit in cash transaction. However, we notice that Ld. CIT(A) appreciated to estimate the disallowance @ 3% instead of 2.5% proposed by AO and we observe that the revenue is in appeal objecting the findings of Ld. CIT(A). Therefore, we dismissed the Ground No. 1 raised by the revenue that AO cannot apply any other method other than estimating the disallowance on alleged purchases. 14. With regard to Ground no. 2 to 6, Ld. CIT(A) has disallowed @ 3% whereas AO has disallowed @ 2.5% alonwith disallowing peak credit on cash transaction. Therefore, in our view, Ld. CIT(A) has proposed 3% is higher than the estimation made by AO. Accordingly, all the grounds raised by the revenue are dismissed. 15. Now coming to CO filed by the assessee, we notice that assessee has raised the jurisdiction issue at the time of filing of appeal before first appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X
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