TMI Blog2017 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhanwarlal Jain or of any other party which is recorded at the back of the assessee incriminating assessee or any other incriminating material to prejudice assessee, the copies of such statements and /or material shall be made available by the AO to the assessee before prejudicing assessee and an opportunity of rebuttal shall by provided by Revenue to the assessee including cross examination in accordance with principles of natural justice. The matter is set aside and restored to the file of the A.O for denovo determination of the issue on merits in accordance with law. - I.T.A. No.4133/Mum/2016 And I.T.A. No. 4383/Mum/2016 - - - Dated:- 29-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. Sanjay K Parikh For The Revenue : Shri. V. Vidyadhar,Sr DR ORDER PER RAMIT KOCHAR, Accountant Member These are cross appeals, filed by the assessee and Revenue, being ITA No. 4133/Mum/2016 and 4383/Mum/2016 respectively for assessment year 2012-13, which are directed against the appellate order dated 28.03.2016 passed by learned Commissioner of Income Tax (Appeals)-30, Mumbai (hereinafter called the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/entities who were acquaintances of Shri. Bhanwarlal Jain and his family members . Sh. Bhanwarlal Jain used to open various benami concerns/entities in the name of his acquaintances which were actually managed and controlled by Sh. Bhanwarlal Jain and his family members. These acquaintances who were dummy partners/ proprietors/ Directors in benami concerns of Sh. Bhanwarlal Jain and his family were merely name lenders and were in fact employees of Sh. Bhanwarlal Jain and family and were looking after miscellaneous work like depositing cheques in banks, handing over parcels to clients, making data entry etc. . It came to notice of Revenue that the assessee has taken accommodation entries of purchases from the following sixteen parties belonging to Sh. Bhawarlal Jain group for A.Y 2012-13 as under:- Sr. No. Name of the hawala party Bill amount 1. Prime Star 2641957 2. Meenakshi 13458256' 3 Mohit Enterprises 8919122 4 May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded by the AO that purchases were actually made by the assessee from grey market without bills at a lower prices and the assessee has been benefited due to margin of the grey market. The A.O concluded that to give it a colour of being genuine purchases, the assessee has obtained bogus bill from the suppliers and purchase rates as mentioned in the suppliers sale invoices cannot be accepted. The conclusion as recorded by the A.O is as under:- a. That the physical delivery of the goods were obtained from the parties based in grey market and to give it colour of being a genuine purchase, the bogus bill / accommodation bill was obtained from the supplier. b. Though the purchases alleged as genuine are shown to have been made by making payment thereof by an account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers. c. The assessee could not produce any delivery challan to prove that the delivery of these goods have been actually received by them from these alleged suppliers. d. The Director/ Partner/ proprietor of above parties have no knowledge of diamond business. e. The Director/ Partner/ pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y market in cash without bill and to adjust the transactions, bills were obtained from the concerns controlled, operated and managed by Sh. Bhanwarlal Jain Group and the only remedy as per A.O is to bring to tax income which has escaped taxation, will be the profit margin embedded in such transaction. The A.O discussed the modus operandi followed by the other diamonds merchant to suppress profits and to make quick profit by indulging in such accommodation entries. Thus , the A.O held that the purchases made by the assessee were not genuine as they could not be verified from the books of accounts. The AO rejected books of accounts of the assessee u/s. 145(3) by holding as under:- Thus, from the above analysis of the facts, it is crystal clear that the purchases made by the assessee from the above parties and claimed as expenses in his profit and loss account are not genuine. Since the purchases to that extent remain unverifiable and cannot be accepted, the books of accounts are rejected as provided in Section 145(3) of the IT Act. Hence, the endeavour is to impute the additional G.P., which the assessee must have earned by purchasing the diamonds in the grey market, than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position. 6. All the grounds of appeal are in respect of the addition made on account of bogus purchases from the sixteen concerns belonging to Shri Bhanwarlal Group, as listed in the assessment order. In the grounds, it is alleged that while making the addition, AO not considered the affidavits of the suppliers who confirmed the transaction entered with the appellant and all of them are available for production/cross examination. The A.O is not correct in considering the purchases as accommodation entries and estimating the adhoc disallowance @ 8% of the total purchases. 6.1 In making the addition, Ld. A.O. relied on the sworn statements given at the time of search and survey operations on the group concerns of Shri Bhanwarial Jain, 'recorded from the in-charge persons of the dummy concerns and the- post search investigation outcome of the investigation wing. It was noticed by the Ld. AO that all the said persons/ concerns from whom appellant had allegedly made purchases had testified before the Investigation authorities that they are merely employees of Shri Bhanwarlal Jain family and are shown as directors, partners and proprietors and the management of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached to the invoices. Since the appellant deals in diamonds/ which is a very small item the same are personally delivered in normal course of business. AO rejecting the books of accounts is not justified for the reason that the purchases are genuine duly accounted in the books of accounts, payments are duly made in the same year or next year, no tangible material with the AO with regard to the alleged bogus purchases except the information received from the investigation wing based on the search/survey action and a statement recorded from an unconnected party. AO himself accepted the purchases/ sales and expenses and question of rejection of books does not arise in such a situation and the AO stating in the assessment order that the books of accounts are rejected, is null and void. Moreover no opportunity was given before rejecting the books and the books are audited u/s 44AB of the Act and therefore rejection of books of accounts is not correct, it is submitted by the appellant relying on certain decision cited in the written submissions. While arguing on the grounds of appeal it is submitted that statement taken from Shri Bhanwarlal Jain others during survey does not have an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted that they never did the business and are merely name lenders for the business concerns of Shri Bhanwarlal Jain, who has admitted that only accommodation entries were given and no actual sale to those parties. In view of the same, I am in agreement with the findings of the AO that the purchases are not made from these parties but from the grey market by paying cash and as the bills are not available for such transactions, obtain bills from third parties, who after receipt of cheques returned the cash after deducting its commission. A person who procures the material from the grey market and exports the same and receives the sale proceeds through proper banking channels, to complete the chain of transaction i.e. to book the purchases against the sale proceeds received, he obtains the bills from entry providers, like Shri Bhanwarlal Jain entities in the present case- issues cheque to them and receives the amount back in cash. In this background only most of the cheques were issued to Bhanwarlal group entities and the appellant has no other option but to take bills from the entry providers as they needs to complete the trading activity in respect of the diamonds sold in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that implications of tax avoidance are manifold. First, there is substantial loss of much needed public revenue. Next, there is serious disturbance caused to the economy of the country due to piling of mountains of black money, causing inflation. Thus, there is the large hidden loss to the community, by some of the' members in the country being involved in the perpetual war waged between' the tax payer and his expert team of advisors, and accountants on the one side and the tax gatherer and his perhaps not so successful advisors on the other side. 6.7 The onus to prove that apparent, is not the real one, is on the party who claims it to be so, as held by the Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 and CIT v. Durga Prasad More (supra). In the latter case, it has been held by the Apex Court that though an apparent statement must be considered real until it was shown that there were reasons to believe that apparent was not the real, in a case where an authority relied on self serving recitals in documents, it was for the party to establish the proof of those recitals, the taxing authorities were entitled to look into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the search action in the Bhanwarlal group cases and intimated to the assessment wing with clear cut findings that accommodation entries were provided to several parties by the group and the appellant is one among the beneficiaries from such accommodation entries. The appellant also argues that the said parties are assessed with different authorities and the books of accounts are also audited. In this regard it is to state that the AO never doubted the identity of the party but the purchases made from them was doubted. Just because the documentation part is perfect, the transaction cannot become genuine. In the present case the suppliers clearly admitted that they have not done any business and given only accommodation entries and also they are only name lenders to Shri Bhanwarlal Jain and there is no chance of real purchases made by them from these parties. In these circumstances, Ld. AO held that though the transactions are not genuine the appellant must have purchased the goods from some unknown entities and estimated' the G.P margin on such purchases. 6.11 In this case, I find that quantitative details were maintained, Ld. A.O. not doubted the genuineness of sales, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the. apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra) especially in the case of CIT vs. Simit P. Sheth (supra), I agree with the action of the AO estimating the addition on the total purchases. 6.15 However AO estimated the profit margin @ 8% and the reasons given are that' most of the traders in the market actually operate at this level of margin in the open market; this fact was identified by the GOI introducing the Benign Assessment Procedure (BAP) for the assesses who are into manufacturing and /or trading of diamonds. BAP was to be applicable for those diamond merchants, who were showing a profit margin of 8% of their turnover. Although, this BAP talks about the net profit margin (NP), for a petty dealer, operating without any establishment, the GP would be almost similar to NP. Hence, it was assumed that the margin in the market, for a pretty dealer, would be 8% which is the same margin that is now being adopted for purchases made in cash from the grey market and for which the bills are procured from the Bhanwarlal Jain group concerns: Though I am in agreement with the reasoning of the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e additions to the tune of ₹ 1.42 crores have been made by the A.O by estimating profits at the rate of 8% of the alleged bogus purchases of ₹ 17.48 crores , which additions were reduced to 3% of the alleged bogus purchases by learned CIT(A) . It was submitted by learned counsel for the assessee that no enquiry was made by the A.O as no notices/summons u/s. 133(6)/131 were issued by the A.O . Our attention was also drawn to page no. 30 of the paper book /para no. 4 wherein in reply to the A.O notice dated 16-03-2015, reply dated 25.03.2015 is placed. Our attention were drawn to page 32-35/paper book wherein quantitative reconciliation of stock was submitted along with reply dated 25-03-2015. It was submitted that total sales of the assessee were exceeding ₹ 86 crores (page 10/pb) , out of which export sales wereto the tune of ₹ 80.31 crores. Our attention was drawn to page 14 of learned CIT(A) appellate order wherein the decision of learned CIT(A) in bringing to tax 3% of the said alleged bogus purchases were placed. It was submitted that search and survey operations were conducted in the case of Mr Bhanwarlal Jain group and the AO made additions based on st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax return of the said supplier Prime Star for the A.Y 2012-13 is placed. Our attention was also drawn to page no. 40 to 46 wherein the audited accounts of Prime Star for FY 2011-12 are placed . Our attention was also drawn to page 47 of the paper book wherein VAT registration of Prime Star is placed . Our attention was also drawn to page no 48 where in copy of PAN of Prime Star is placed. It is claimed that all these documents were duly filed before the AO vide reply dated 25-03-2015 which has not been looked into by the AO while fastening tax-liability on the assessee . It was submitted that A.O did not make any enquiry before fastening tax liability on the assessee. It is claimed that these documents w.r.t. all sixteen alleged hawala suppliers were duly submitted before the AO on 25-03-2015 . It was submitted that the Revenue has placed reliance only on the investigation done by DGIT (Inv) Mumbai while no independent investigations were done by the authorities below. Reliance was placed on the other decision of the tribunal in the case of Fancy Wear v. ITO in ITA no. 1596 and 1597/Mum/2016 for A.Y 2010-11 and 2011-12(copy placed in file) and reliance was also placed on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has declared G.P ratio of 6.4% and Net Profit ratio of 3.86% for the impugned assessment year. Our attention was also drawn to page no 347 of the paper book wherein report is placed of the task group for diamond sector to make India an International trading hub for rough diamonds which was appointed by Department of Commerce , and it was submitted that in the said report it is proposed by the task force appointed by Department of Commerce to bring to tax income computed at the presumptive rate of 2.5.% of turnover . However , it was submitted that instructions issued by CBDT no. 2/2008 dated 22.2.2008 w.r.t. Benign Assessment Procedure has proposed to bring tax income computed at the rate of 6% for the total turnover . The copy of the said instructions are reproduced here under:- SECTION 143 OF THE INCOME-TAX ACT, 1961 - ASSESSMENT - BENIGN ASSESSMENT PROCEDURE FOR ASSESSEES ENGAGED IN DIAMOND MANUFACTURING AND/OR TRADING INSTRUCTION NO. 2/2008, DATED 22-2-2008 The undersigned is directed to state that the 'Benign Assessment Procedure', in the case of assessees engaged in diamond business as announced by Hon'ble Finance Minister in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 25-03-2015 , while the assessment was getting time-barred on 31-03-2015 and the A.O did not get the time to verify the contents and the correctness of the said affidavits and the replies submitted by the assessee on 25-03-2015 w.r.t. purchases from these sixteen parties. It was submitted that the assessment order was passed by the AO on 27-03-2015 which was only two days after the submission of these documents by the assessee before the AO on 25-03-2015.The learned DR relied upon assessment order passed by the AO. 7. We have considered rival contention and perused the material on record including orders of the authorities below and case laws relied upon. We have observed that the assessee is engaged in the business of manufacturing and trading of polished diamonds . The search and survey action was conducted by DGIT (Inv) Mumbai in the case of Shri. Bhanwarlal Jain and others on 03.10.2013. The investigation wing Mumbai, unearthed various concerns/entities being managed , controlled and operated by Sh. Bhanwarlal Jain and his family members although these concerns/entities were having name sake/ dummy directors/ partners/ proprietors in these concerns/entities who were acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases shown by the assessee from these firms are bogus. The A.O concluded that since the assessee has provided stock statement wherein the entries of these purchases were made , the only conclusion as per AO can be drawn is that the assessee has purchased these items from open/grey markets either directly or through brokers from some parties known to the assessee in cash without bills and to justify the same invoices were obtained from these sixteen suppliers who have merely issued paper invoices without supplying any material . The AO concluded that the assessee was beneficiary of the accommodation bills issued by these parties. The AO observed that the assessee has claimed sales to be genuine , it is proved that the assessee was actually in possession of the goods as there cannot be sales without purchases. It was concluded by the AO that purchases were actually made by the assessee from grey market without bills at a lower prices and the assessee has been benefited due to margin of the grey market. The A.O concluded that to give it a colour of being genuine purchases, the assessee has obtained bogus bill from the suppliers and purchase rates as mentioned in the suppliers sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DGIT(Inv.), Mumbai which was recorded at the back of the assessee as is emerging from records as well copies of such statement was also not furnished to the assessee. It was claimed by the assessee before learned CIT(A) that all documents such as affidavits, tax returns including financial statements, confirmations from said parties were submitted before the AO but the same were not looked into by the AO. The learned CIT(A), however restricted the additions to the tune of 3% of alleged bogus purchases. The learned CIT(A) whose powers are co-terminus with the powers of the A.O entered into blame game by alleging that the A.O has not undertaken the enquiry etc. instead of getting the enquiry done by himself or directing the AO to do the necessary enquiry as was warranted keeping in view factual matrix of the case. The learned CIT(A) ought to have directed AO to comply with the principles of natural justice by furnishing copies of statement of Sh. Bhanwarlal Jain to the assessee for rebuttal and offering said Mr Bhanwarlal Jain for cross examination. The powers of learned CIT(A) are co-terminus with the powers of the A.O and in case the A.O has not conducted enquiry which ought to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said factual matrix , the tribunal upheld the appellate order of learned CIT(A) upholding additions to the tune of 6% of the alleged bogus purchases. The assessee in the instant case has challenged the appellate order of learned CIT(A) and seeking deletion of the additions so made by authorities below. The purchases are appearing in the books of the assessee and the assessee is seeking benefit of deduction of these purchases against its income , hence primary onus is on the assessee to prove that purchases are genuine and that too in the midst of incriminating statements of Sh Bhanwarlal Jain as well investigations conducted by DGIT(Inv.). We have also gone through the replies dated 25-03-2015 submitted by the assessee before the AO (page 29-303/pb) wherein the assessee has claimed to have submitted affidavits, tax returns including audited accounts , confirmations etc of these parties and these documents need verification and examination by the AO. Thus under the circumstances keeping in view factual matrix of the case, we are inclined to set aside the matter back to the file of the A.O for denovo determination of the issue on merits in accordance with law after conducting su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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