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TMI Blog2017 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... 4133/Mum/2016, read as under:- " The Honourable Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 53,54,962/- @ 3% of alleged bogus purchases of Rs. 17,84,98,737/- against addition of Rs. 1,42,79,899/- @ 8% of the said alleged bogus purchase made by the AO without considering the facts and merit of the case. The Hon'ble CIT (Appeals) has also erred in not considering the explanations, affidavit, confirmations and other relevant documents submitted during assessment and appeal proceedings in support of being genuineness of the alleged bogus purchases without understanding the merits and value of the said documents. The Appellant craves leave to submit at the time of hearing such further facts, information, clarification, documents etc. as may be necessary for the purpose of deciding the issues in the appeal. The appellant craves leave to add, alter, amend or modify the aforesaid grounds of appeal." 3. The grounds of appeal raised by the Revenue in the memo of appeal filed with the tribunal in ITA No. 4383/Mum/2016 read as under:- "1. On the facts and circumstances of the case and in law, whether Ld CIT(A) was justified in sustaining th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh cheques only. The A.O observed that the assessee has only furnished stock register entry, cheque payments, custom appraisal report in respect to export sale but no other document such as delivery challans were produced by the assessee during the course of assessment proceedings , which led A.O to believe that these purchases 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 markets either directly or through brokers from some parties known to the assessee. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not having visited any foreign country for the purpose of business. h. The assessee was also asked to produce the above suppliers for verification but he failed to produce them before the undersigned. When expenditure (Purchase) is claimed to have been incurred, the initial burden will be on the assessee to prove the genuineness of the purchase. In case the parties have shifted, the assessee is expected to know their current address as the onus is on the assessee (legal heir) to prove that the purchases were genuine. Reliance is placed on judgment of the Gujarat High Court reported in CIT Vs Chandra Vilas Hotel (1987) 164 ITR 102 (Guj.). This onus has not been discharged by the assessee. Thus the A.O observed in such situation when stock has been reconciled , it could be concluded that the assessee has obtained accommodation bills from concerns/entities controlled by Sh. Bhanwarlal Jain Group while actual purchases were made from grey 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 taxatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4279899/- (Rs. 178498737/- *8%). Penalty proceedings u/s 271(1)(c) are hereby initiated separately for filing inaccurate particulars and concealment of income" Thus in nutshell AO made additions to the tune of Rs. 1,42,29,899/- at the rate of 8% of the alleged bogus purchases of Rs. 17,84,98,737/- , vide assessment order dated 27-03-2015 passed by the AO u/s 143(3). 5. Aggrieved by the assessment order dated 27-03-2015 passed by the AO u/s 143(3), the assessee filed first appeal before the learned CIT(A), who after considering the submissions of the assessee restricted the addition to 3% of the said total alleged bogus purchases of Rs. 17,84,98,737/- , by holding as under vide appellate orders dated 28-03-2016 passed by learned CIT(A):- " 5. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as well as the applicable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished before the AO. It is stated that purchases were recorded in the books of accounts and were included in the stock records and mainly 99% of the sales are export sales. Statement given by a third party cannot be a reason for doubting the genuineness of purchases and the appellant do not know Shri Bhanwarlal Jain. All the parties are available at the given addresses and they have also given affidavits confirming the sale made to the appellant and in view of the same, statement of the third party has no evidentiary value. All the purchases and sales are duly entered in the books of accounts. The AO, when in doubt with regard to the genuineness of the transaction would have called the parties for verification under the powers vested with him u/s 133(6)/ 131 of the Act. All the invoices are clearly stating the place of delivery of the goods hence delivery challans haven not been separately issued and attached 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 6.3 On perusal of the rival contentions and the material on record, I have found that in the appellant's case, Ld. A.O has not made independent verifications nor he has attempted to issue notice u/s: 133(6)/ 131 of the I.T. Act, but the fact remains that there was an overwhelming evidence in the form of sworn statements recorded from the alleged suppliers given before the Investigation Wing, Mumbai that they are only name sake proprietors/ partners / directors of the concerns and the actual management & control is by Shri Bhanwarlal Jain& his family members. Shri Bhanwarlal Jain also admitted that they are only giving accommodation entries to several parties and the appellant is one among them. 6.4 After weighing the evidence pro and con, I am of the opinion that onus is always on the appellant to prove as to how the material purchased was firstly obtained when the suppliers themselves 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easy to make self serving statements in documents either executed or taken by a party who relied on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon'ble Court further held that the Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 6.6 Reliance is also placed on the judgement of Hon'ble supreme Court in the case of Sri Meenakshi Mills Ltd 63 ITR 609 where it was held that the I.T. Authorities are entitled to pierce the veil of Corporate Entity and to look into reality of transaction. In the case of McDowell & Co. 154 ITR 148(SC) it was stated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple could be attracted to a set of circumstances that satisfies its conditions and was applicable to taxing proceedings. 6.9 The Ld. AR has relied on a number of decisions with regard to the evidentiary value of a statement taken during survey and argued that the statements of Shri Bhanwarlal Jain does not have any evidentiary value. However in the said case, search and survey actions were conducted simultaneously and the statements were recorded during the course of search and seizure proceedings and post search investigations. In view of the same, the arguments of the appellant and cases cited do not come to the rescue of the appellant on this issue. 6.10 The appellant contends that the AO did not make any independent inquiries on his own. However in this case the investigation wing of the Income Tax Department conducted several inquiries in the post search investigation after 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase would not be subjected to tax and only the profit element embedded therein was to be taxed. While coming to the above conclusion, the Hon'ble High Court also relied on the decision in the case of Sanjay Oil Cake Ind. 316 ITR 27(Guj). 6.12 In Sanjay Oilcake Industries Vs Commissioner of Income-tax [2009] 316 ITR 274 (Guj), it was held as under: "12. Thus, it is apparent that both the Commissioner (A) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques. the cheques have been deposited in hank accounts ostensibly in the name of the apparent sellers, thereafter the 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) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice of bogus purchase is mainly to save 10% sales tax etc.; It has also been informed that in this industry about 2.5% is the profit margin. Therefore respectfully following the decisions of the co-ordinate bench pronounced on identical circumstances, we hereby direct that the disallowance is required to be sustained at 12.5% of the purchase from those parties. With these directions, we hereby decide the grounds of the rival parties which are partly allowed." 6.14 As narrated earlier, the Ld. A.O. in this case has himself held that the purchases were not bogus though the party from whom the purchases were made by the appellant was found to be bogus and that is the reason for which AO considered the profit element embedded on such purchases which is estimated @ 8% of the total purchases. The motive behind obtaining bogus bills thus, appears to be inflation of 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% an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. Considering the lesser profit margin in this sector i.e. around 2 to 3 percent and the taxes saved is around 1 % and also on purchases made from places like Surat, there is no levy of tax, I am of the considered opinion that if the addition is sustained to the extent of 3% of the purchases made as the profit element embedded in such purchases from the sixteen parties belonging to the Bhanwarlal Group concerns, the same will meet the ends of justice. Accordingly I direct the AO to restrict the addition @3% on the total purchases of Rs. 17,84,98,737/- from the sixteen parties, which works out to Rs. 53,54,962/-. Grounds raised on this issue are partly allowed." 6. Aggrieved by the appellate order dated 28-03-2016 passed by learned CIT(A), both assessee and Revenue are in appeal before the tribunal. Ld. Counsel for the assessee submitted that the additions to the tune of Rs. 1.42 crores have been made by the A.O by estimating profits at the rate of 8% of the alleged bogus purchases of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group. It was submitted that these sixteen parties have confirmed that they have sold the material to the assessee. Our attention was also drawn to page no. 14 of the learned CIT(A) appellate order wherein vide appellate decision the learned CIT(A) computed additional income being embedded profit of 3% of the said alleged bogus purchases which was brought to tax , while the A.O estimated additional profit embedded in these purchases to the tune of 8% which was brought to tax by the AO. Our attention was also drawn to page no. 36 of the paper book wherein affidavit executed on 24-03-2015 by one of the said supplier (Prime Star) is placed . Our attention was also drawn to page no. 37 of the paper book wherein confirmation from Prime Star is placed . Our attention was also drawn to page 40 of the paper book wherein the income tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the persons whose statement was relied upon by the Assessing Officer. Therefore, the addition on peak basis cannot be sustained. Moreover, while estimating the profit suppressed on alleged bogus purchases @ 6%, the learned Commissioner (Appeals) has relied upon the CBDT instructions no.2/2008 dated 22nd February 2008. That being the case, we do not find any infirmity in the order of the learned Commissioner (Appeals) on this issue. Accordingly, grounds raised are dismissed. 8. In the result, Revenue's appeal is dismissed." It was also submitted that quantitative reconciliation of the stock were duly submitted before the authorities below (page no. 32 to 35 /paper book) and it was submitted that the diamonds were purchased and exported . Our attention was also drawn to page no. 24 of the paper book to contend that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year 2008-09. The instruction may be brought to the notice of all concerned in your Region." It was again reiterated that no inquiry was made by the A.O with respect to these purchasing parties. On being asked by the Bench, the learned counsel for the assessee after taking instructions from the representatives of the assessee who were present in the Court during the course of hearing stated before the Bench that no inquiry has been initiated by any Government Department such as CBI, ED, Customs, Income-Tax etc. against the assessee w.r.t. its business activities in the field of manufacturing and trading of diamonds. Ld. DR on the other hand submitted that as per paper book itself assessee has given the replies and the affidavits only at the fag-end 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 invoices cannot be accepted, which led AO to make additions of the profit embedded in such bogus purchases to the tune of 8% of said alleged bogus purchases vide asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have been conducted or cross examination was not allowed of Sh Bhanwarlal Jain by the AO, it was incumbent on the learned CIT(A) to have directed necessary enquires/inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such enquiries and verifications as are necessary for completing the assessment in de-novo proceedings . If the department wants to rely on statement of Sh. Bhanwarlal Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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