TMI Blog2017 (8) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, in our considered opinion we do not found any substantive reason and logic in sustaining addition @5% on account of bogus purchases. Hence, the same is deleted. - I.T.A. Nos.563, 564, 565,567 & 343 (Asr)/2016 And I.T.A. Nos.571, 572, 573 , 574 & 232(Asr)/2016 - - - Dated:- 30-8-2017 - SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.N.K.CHOUDHRY, JUDICIAL MEMBER For The Appellant : Sh. Salil Kapoor Sh. Ananya Kapoor (Ld.Advs.) For The Respondent : Sh. Rahul Dhawan (Ld. DR) ORDER PER BENCH: These are ten cross appeals have been filed by the Revenue Department as well as assessee, by feeling aggrieved against the different orders passed by the Ld. CIT(A)-1, Amritsar, in respect of said appeals Nos. and separate dates. Because , in all the appeals filed by the Revenue/ Department and assessee, the issues involved are identical and similar challenging the identical order, therefore, for the sake of convenience and brevity grounds of appeal No.563(Asr)/2016 for Ass. Year:2008-09 filed by the Revenue Department and ITA No.571(Asr)/2016 for Asst. Year 2008-09 filed by the assessee has been taken up for consideration and results of the same would also be app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on record has not been properly considered and judicially interpreted and same do not justify any addition. The CIT(A) has erred in sustaining the addition of 5% on the alleged bogus purchases. 3. The brief facts of the case (ITA no. 563/ASR/2016) , as emerged from the order passed by the authorities below that the assessee declared income of ₹ 6,81,840/- on 30.09.2008 by filing its return and the same was processed u/s 143(1). Later on, the case was reopened u/s 147 of the I.T. Act,1961 after recoding the reasons for the same. Subsequently, statutory notice u/s 148 was issued on 26.03.2015 which was duly served upon the assessee on 26.03.2015. Thereafter, reassessment proceedings were started on the basis of information received that the appellant had made purchase of loose diamonds from two parties at Surat through broker Sh. Paresh Bhai (which according to the Assessing Officer were bogus and as such were under dispute). The details of such purchases are as follows. Sr. No. Name PAN GST No. Statute Weight in CTS Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits amounting to ₹ 36,01,143/- and finally the Assessing Officer came to the conclusion that the assessee has failed to prove the identity of the broker and genuineness of the transactions and in view of the commission report received, the party namely Jewel Diam and Rose Impex from whom the assessee had made purchases are fictitious. Hence, it is held that all the above mentioned purchases amounting to ₹ 82,01,493/- have been proved fictitious and are bogus/fictitious expenditure and added back to the total income of the assessee. The Assessing Officer also initiated penalty proceedings u/s 271(1) (c) of the I.T. Act. for furnishing inaccurate particulars of income. 4. Feeling aggrieved against the assessment order dated 31.03.2016, the assessee preferred the first appeal before the Ld. CIT(A) and the Ld. CIT(A) while considering the factual matrix of the case and rival submissions of the parties, partly allowed the appeal of the assessee by deleting the additions made by the Assessing Officer by restricting to 5% of the bogus purchases by holding as under: 6. I have gone through the grounds of appeal, submission and the assessment order. Ground No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adhukant Bhandhi vs. ITO, where addition was restricted to 5% of bogus purchases. In the light of above addition is restricted to 5% of the bogus purchases. Similar the addition is restricted to 5% of bogus purchases in the current year as well. 5. Feeling aggrieved by the said orders passed by the Ld. CIT(A), the Revenue as well as assessee preferred the aforesaid appeals on different grounds. 6. First, we will decide the appeal filed by the Revenue Department. In support of its appeal, the Ld. DR submitted that in the instant cases, broader view/complete outlook/ over all circumstances are requires to be considered because all India basis investigations were conducted in which a leading bogus entry provider of Mumbai was found who was operating, specifically through Bhanwarlal Jain Group (Mumbai) , providing entry by showing bogus purchases and getting payment through RTGS and in return paying the amount back in the form of cash. Further it was also revealed the Revenue Department that the assessee is involved in the bogus entry in taking accommodation entry by showing bogus purchases and making payment through RTGS got the bogus bills for bogus purchases and recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the records, it is clearly reflects that the assessee was asked to produce the parties concerned by show cause notice dated 14.03.2016 but the assessee failed to produce the parties before the Assessing Officer and although the Assessing Officer has received replies from the parties in response to the information called for u/s 136(6) of the Act, but the results of the field enquiry, conducted by the Inspector of the Department does not support the actual existence of the parties at the available addresses , therefore, all these acts of the assessee confirms that an agent is acting on behalf of all above mentioned concerned persons and actually all are bogus/fictitious and only involved in providing accommodation entries to the persons who are in need. The Ld. DR also relied upon the judgments passed by the Gujrat High Court in the case N. K. Industries Ltd. Vs. DCIT, 2016-TIOL- 3165-HC-AHM-IT which was affirmed by the Supreme Court on India in Special to Leave (C)...CC No.769/2017 and submitted that the entire undisclosed income generated out of bogus transactions, deserves to added to total income. Further the Ld. DR relied upon a judgment passed by the Kolkata High court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 ( ii) CIT vs. Bholanath Poly Fab Pvt. Ltd. [2013] 40 taxman.494, (Gujrat) and submitted that once the assessee filed letter of confirmation of suppliers, copies of bank statement showing entries of payment through account payee cheques to supplier and stock /sale statement, therefore, merely because suppliers did not appear before the A.O does not mean that the purchases were not made by the assessee. Further simply by not finding the concerned parties at their respective addresse, purchases cannot be made as bogus because entire quantity of stock was sold by the assessee therefore only profit margin embedded in such purchases would be subject to tax and not entire purchases, and finally, it was submitted by the Ld. AR that even otherwise in the instant case books of accounts have not been rejected, therefore, the purchases cannot be held as bogus in its germane. In rejoinder, the Ld. AR also relied upon the judgment passed in the case of Kunhayammed and Ors. Vs. State of Kerala Ors. (245 ITR 360) and submitted that in view of the judgement passed by Apex Court, an order refusing special leave to appeal does not attract the doctrine of merger and having no bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; 2. If the petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the Court that a case for invoking appellate jurisdiction of the Court was not made out; 3. If leave to appeal is granted the appellate jurisdiction of the Court stands invoked; the gate for entry in appellate arena is opened. The petitioner is in and the respondent may also be JJ called upon to face him, though in an appropriate case, in spite of having granted leave to appeal, the court may dismiss the appeal without noticing the respondent. 4. In spite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for, continues to be final, effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgment, decree or order appealed against is put in jeopardy though it continues to be binding and effective between the parties unless it is a nullity or unless the Court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge. Dismissal at stage of special leave - without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. ( iii) Doctrine of merger is not a doctrine of universal or unlimite application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. iv) An order refusing special leave to appeal may be a non- speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as bogus in its germane because it is not in controversy that entire payment qua purchased items have been made through RTGS/Cheques only and the same has been verified and confirmed from the bank statements of assessee as well as of the sellers and entire sale has also been proved by further tallying the sold items with purchased items and even otherwise from the aforesaid business , the Assessee also earned gross profit of ₹ 203205/- on sale of alleged bogus purchase of diamonds and the results also were duly supported by the quantitative details and in view of the judgments of various Courts even otherwise in the case of bogus purchases, the income has to arrive at by applying some percentage of profit and the entire purchases cannot be added as profit. As we find support from judgment of Hon ble High Court of Madhya Pradesh in the case of Man Mohan Sadani Vs. 304 ITR 52 (MP). Even otherwise the Hon ble High Court of Mumbai in the commissioner of Income Tax -1, vs. Nikunj Eximp Enterprises Pvt. Ltd. dealt with the same situation and was pleased to held as under: 7. We have considered the submission on behalf of the revenue. However, from the order of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case Sanket Sttel Traders vs. ITO [IT Appeal Nos. 2801 2937 (Ahd.) of 2008, dated 20-05-2011] and also made reference to the Tribunal s decision in the case of Vijay Proteins Ltd. Vs. Asst. CIT[1996] 58 ITD 428(Ahd.) 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the natural corollary, not the entire amount covered under such purchase, but the profit embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deserves to be interfered on the grounds raised by the Revenue department. In our considered view, in cumulative effects of the aforesaid reasons, the appeals filed by the Revenue is liable to be dismissed and hence stands dismissed. 9. Now coming to the appeals of the assessee as such before the opening the cases itself, the Ld. AR did not press the ground 1 to 3 being legal grounds and intended to argue on the other relevant grounds No.4 to 7 as mentioned in para No.2 of this order and submitted that in the facts and circumstances of the cases, the CIT(A) has erred on facts and in law, in sustaining the addition to the tune of 5% on account of alleged bogus purchases which is not only illegal, unjust and arbitrary to sustain and while sustaining addition @ 5%, the Ld. CIT(A) has not considered the explanation given, evidence produced, material placed and available on record and judicial interpretation, therefore, the same do not justify any addition. The Ld. AR intensely submitted that confirming 5% of the bogus purchases, the Ld. CIT(A) simply relied upon the judgment passed by the Mumbai ITAT, in the case of Sh. Madhukant B Gandhi. Vs. ITA where net profit rate was appl ..... 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