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Prankit Exports Versus ITO 25 (3) (2) , Mumbai And Vice-Versa

2018 (2) TMI 266 - ITAT MUMBAI

Reopening of assessment - addition made u/s. 69C towards unexplained expenditure for an alleged bogus purchases - Held that:- It is pertinent to mention that the Revenue has originally processed return of income u/s. 143(1) of the Act and no scrutiny assessment u/s. 143(3) was framed by the Revenue . The Ld. DR did not objected to dismissal of the grounds of appeal being ground no.1 and 2 raised by the assessee challenged the reopening of the assessment u/s. 147 of the Act. Thus, keeping in view .....

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ined to confirm aforesaid well reasoned appellate order of the Ld. CIT-A which aimed to make additions to the income by estimating profits embedded in the said alleged bogus purchases which profits the assessee gained by obtaining material from grey market at lower rate while obtaining bills from these parties namely AVI Exports and Rajiv Impex to reconcile records and books of accounts. - The profits estimated by the learned CIT(A) appears to be reasonable keeping in view factual matrix of .....

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ined in his appellate orders wherein estimation of embedded profits in the case of alleged bogus purchases were upheld by Hon’ble Courts. - I.T.A. No.1441/Mum/2016 And I.T.A. No. 3133/Mum/2016 - Dated:- 1-2-2018 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. R.K Sinha For The Revenue : Shri. Rajat Mittal ORDER PER RAMIT KOCHAR, Accountant Member These are cross appeals, filed by the assessee and Revenue, being ITA No. 1441/Mum/2016 and 313 .....

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grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA no. 1441/Mum/2016, read as under:- 1. Assumption of jurisdiction by the AO for initiating reassessment proceeding is bad in law: 1.1 On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the assumption of jurisdiction by the Ld. Assessing Officer as the conditions laid down under section 147 to .....

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erred in confirming the initiation of the reassessment proceeding even when the Ld. Assessing Officer erred in solely relying on the information of the investigation wing, Mumbai. The AO had not conducted any independent enquiry before issue of notice under section 148 of the Act. Hence, the Assessing Officer had no reason to believe that any income chargeable to tax has escaped assessment. 2. Assessment order is invalid for the reason that the procedure laid down by the hon'ble Supreme Cou .....

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s and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition of ₹ 77,70,765/- on account of unexplained expenditure u/s 69C of the Act particularly when the entire purchases from M/s Avi Exports have been recorded in the books of account. 3.2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the treatment of the purchases of ₹ 77,70,765/- as non-genuine by the Ld. Assessing Officer without app .....

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he assessment order). Hence the cross verification was also complete. 3.4. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in partially confirming the addition merely on 'the basis of third-party statement without giving opportunity to cross examine and without verifying the evidences filed by the appellant and without considering the documents available on his records. 3.5. On the facts and in the circumstances of the case and in law the learned CIT(A) .....

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cumstances of the case and in law the learned CIT(A) erred in confirming the addition made by the AO simply because the letter under section 133 (6) of the Act was not responded by M/s Rajiv Impex and ignoring the fact that all the documents of the purchases were furnished to the AO. 4.3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in estimating the net profit of 12.5% of the total purchase particularly when he has accepted that the Ld. AO has wrongly re .....

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9/-on account of bogus purchases. (ii) On the facts and in the circumstances of the case and in law, the Id. CIT (A) has erred in not considering that the addition was made on the basis of information received from the DIT(Inv.) and Sales Tax Department, Maharashtra with regard to bogus purchases made by the assessee from dealers without supply of actual goods. (iii) On the facts and in the circumstances of the case and in law the Ld. CIT (A) has erred in not considering that the hawala dealers .....

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urchases from hawala dealers. (vi) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating that purchases were made from some other parties which were not recorded in the books of accounts and only accommodation bills were obtained from hawala parties and there by attracting provisions of section 40A(3). (vii) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in not appreciating the fact that applicability of provisions .....

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AVI Exports to the tune of ₹ 77,70,765/- and alleged bogus purchases made by the assessee from Rajiv Impex to the tune of ₹ 29,90,702/-. At the very outset , the Ld. Counsel for the assessee submitted before the Bench that the assessee is not pressing grounds of appeal being ground no. 1 and 2 raised by the assessee in memo of appeal filed with the tribunal with respect to the reopening of the concluded assessment by the Revenue u/s. 147 of the Act. . It is pertinent to mention that .....

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ed assessment u/s. 147 of the Act. We order accordingly. 5. Now , we proceed to decide the appeals filed by the Assessee and the Revenue on merits . The brief facts of the case are that the search and seizure action u/s. 132 of the 1961 Act was carried out by the DGIT(Inv), Mumbai on 3rd October , 2013 in Shri. Rajendra Jain Group cases wherein statement on oath was recorded by Revenue of Shri. Rajendra Jain during the course of search and seizure operations u/s 132 that his companies/entities w .....

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asons to reopen the assessment as the income had allegedly escaped assessment. The notice dated 24-3-2014 u/s 148 was issued by the AO which was beyond four years from the end of the assessment year but however originally return of income was processed u/s 143(1) and no scrutiny assessment was framed by the Revenue u/s 143(2) r.w.s. 143(3). The assessee did not raised any objection to the reopening of the concluded assessment. The AO issued notices u/s. 133(6) to M/s. AVI Exports who in response .....

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hing further to add. The AO also issued notice dated 23.02.2015 u/s 131 to said Sh. Rajendra Jain to attend the proceedings personally but he did not attended nor filed any details. The A.O also issue notice dated 23-02-2015 u/s. 133(6) to M/s. Rajiv Impex which stood un-replied/un-complied with . The assessee was confronted by the AO about the aforesaid non compliances but the assessee did not submitted any further reply/explanations. Since the said purchases remained unverifiable , the A.O rej .....

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e Act, vide assessment order dated 27.03.2015 passed by the AO u/s. 143(3) r.w.s 147 of the Act. 6. The assessee carried the matter by filing first appeal before the learned CIT-A . The assessee submitted before learned CIT(A) that merely because notices u/s. 133(6) to M/s. Rajeev Impex was returned unserved, the A.O has rejected the books of accounts which is not correct as the said reasons are not stipulated u/s. 145 of the Act for rejection of the books of accounts . It was submitted that the .....

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and stock register. It was submitted that quantitative reconciliation of the stock was submitted and no defect is pointed out by the AO in the said stock reconciliation . The assessee submitted that the overall GP ratio is 14.69% and while on these disputed transactions GP ratio is 14.3% and the tax auditor has not made any adverse comments on the transactions entered into by the assessee and the books of accounts maintained by it. It was submitted that if additions as were made by the AO are su .....

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one co-relation between the purchase and the sale for which complete details were submitted . It was submitted that the AO did not found any purchases outside books of account. It was submitted that purchases and sales were properly recorded in the books of accounts . It was submitted that proper books of accounts were maintained by the assessee including purchase register, sale register, stock register, ledger, day book , bank book etc. and no defects or irregularity were found by the auditor .....

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considering the submissions of the assessee on merits brought to tax 12.5% profit amounting to ₹ 13,35,058/- embedded on such alleged bogus purchases to the tune of ₹ 1,06,80,467/- from M/s AVI Exports and M/s Rajiv Impex, vide appellate order dated 22-02-2016:- 7. Aggrieved by the appellate order dated 22-02-2016 passed by learned CIT(A), both the assessee and the Revenue have come in an appeal before the tribunal . The Revenue is aggrieved by the learned CIT-A decision of upholdin .....

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hat the assessee in the business of trading and exports of diamond during the assessment year under consideration . It was submitted that originally return of income was processed u/s. 143(1) and no scrutiny assessment u/s 143(3) was framed by the revenue . It was submitted that notices u/s 148 were issued on 26.03.2014 which is after 4 years from the end of the A.Y. . On merits, the Ld. Counsel for the assessee argued for the deletion of the additions to the tune of 12.5% being profits estimate .....

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/s. 133(6) were issued by the AO has not replied to the said notice , the books of accounts were erroneously rejected u/s. 145(3) . It was submitted that no addition can be sustained and prayer is made by learned counsel for the assessee for deletion of the additions as were sustained by learned CIT(A). The Ld. DR on the other hand relied upon the order of the A.O and the pressed for sustaining the additions to the tune of 100% of the alleged bogus purchases as were made by the A.O.. 8. We have .....

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s return of income filed u/s 139(1) is concerned. Based on the incriminating information from DGIT(Inv.), Mumbai, the case of the assessee was reopened u/s. 147 of the Act by the AO by issuance of notice u/s. 148 dated 26.03.2014 which was beyond four years from the end of the assessment year and the reason recorded by the AO for reopening of the assessment u/s. 147 of the Act are as under:- An information vide letter bearing no. DGIT(Inv)/ information/ Diamond 2013-14 dated 14-03-2014 has been .....

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ary and Shri Dharmichand Jain are some of the entry providers operating in Mumbai, indulging in providing accommodations entries in the nature of bogus sales and unsecured loans. As per the list provided by DGIT (Inv) Prankit Exports (AAAFP2359D) has taken a accommodation entry from M/s. Avi Exports on account of sale transaction for the amount of ₹ 77,70,765/- during the FY 2006-07. As stated above this is bogus sales shown by the assessee ₹ 77,70,765/-. In view of the above, I have .....

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his concerns inter-alia including AVI Exports are engaged in providing bogus accommodation entries wherein only accommodation bills were issued for sale, purchase etc without actually supplying any material physically and the assessee was also beneficiary of the accommodation entry by way of bogus purchase bills to the tune of ₹ 77,70,765/- from AVI Exports wherein the assessee merely obtained accommodation bills towards purchases without actually getting the material physically . The ass .....

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e could not produce the parties before the A.O and the AO rejected books of accounts u/s 145(3) and made the additions to the tune of 100% of the alleged bogus purchases which was reduced to 12.5% by learned CIT-A by estimating profits embedded in such alleged bogus purchases by relying on several decisions of the Courts under similar circumstances which found mentioned in the appellate order of learned CIT(A), as under:- 6. Ground Nos. 3 & 4 are in relation with addition on account of unexp .....

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under consideration. Accordingly, the AO has reason to believe that an amount of ₹ 77,70,765/- is simply an accommodation entry and no actual transactions were carried out by the assessee and thus, the said amount was escaped assessment for A.Y.2007-08. The Assessing officer has issued notice u/s.133(6) of the I T Act to M/s. Avi Exports and M/s. Rajiv Impex. However, the A.O. has further issued show cause notice to appellant to substantiate the transactions as genuine by producing the pro .....

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ex as unexplained expenditure u/s.69 C of the Act and added the same to the total income of the assessee. 6.2 In this regard the appellant has submitted that the appellant had maintained regular books of account, according to mercantile system of accounting and in accordance with the Accounting standards. There was neither any change in the method of accounting as compared to earlier year nor any change in any accounting policy. The books of accounts are audited under section 44AB of the I T act .....

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on are not arbitrary and he must exercise his discretion and judgement judicially. A clear finding is necessary before invoking the provision sec.145(3) of the I T Act. The Assessing officer has not been able to point out any defect or mistake or error in the books of accounts. He accepted the sales receipts. The Assessing officer has to bring on record the material on the basis of which he has arrived at the conclusion with regard correctness or completeness of the accounts of the assessee or t .....

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audited and auditor had not given adverse comments on maintenance of books of account or stock register, it was apparent that assessee's books of account are genuine and the Assessing officer was wrong in rejecting the same. In appellant's case, auditor has not given any adverse comments in maintenance of books of account or stock register. 6.4 In view of the above, it is difficult to accept that the books of account of the assessee are defective or incomplete from which the correct pro .....

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ank statements, where these payments made to these parties through normal banking channel have been reflected were submitted during the assessment proceedings. The appellant has also submitted the decision of Hon'ble ITAT in the case of Shri Hiralal Chunnilal Jain in ITA No.4547/Mum/2014 and Bombay High Court decision in the case M/s. R.W.Promotions P. Ltd., Mumbai in ITA No.1489 of 2013. 6.6 Identical issue came up before the Hon'ble High Court of Gujarat in the case of Commissioner of .....

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ced before it, the Hon'ble Tribunal noted that the entire cloth of 1,02,514 metres was sold during the year and therefore, accepted the assessee's contention that finished goods purchased by the appellant may not be from the parties shown in the accounts but from other parties. In view of this the Hon‟ble ITAT was of the view that only profit margin embedded in such purchases would be subjected to tax. The Hon'ble Tribunal relied on its earlier in the case of M/s. Saket Steel T .....

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th and sell finished fabrics - Not entire purchase price but profit element embedded in purchases liable to tax- Income tax Act, 1961. The assessee for the assessment year 2005-06 was engaged in the business of trading in finished fabrics. The assessing officer held that purchases worth ₹ 40,69,546/- were unexplained and disallowed the expenditure claimed by the assessee and computed the total income of ₹ 41,10,187/-. In so far as the question of bogus purchases was concerned the Tri .....

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t was found that the cheques were encashed by some other parties and not by the supposed sellers. However, the Tribunal was of the opinion that though the purchases might have been made from bogus parties the purchases themselves were not bogus. The tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year 2005-06 were sold by the assessee. Therefore the purchases of the entire 1 .....

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9;ble Court had upheld the action of the CIT(A) and ITAT in determining estimated addition of 25% of the purchases in cases involving bogus purchases. The head note is as under:- Assessment income from undisclosed sources - Additions on account of inflated purchase price - Estimate- Not a question of law - No material produce by assessee to disprove inflated purchases - Tribunal's order in accordance with law - Income Tax Act, 1961. Whether an estimate should be at a particular sum or at a d .....

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n cross appeals by the assessee and the revenue the Tribunal confirmed the order of the Commissioner (Appeals.) The assessee sought modification of the order on the ground that the tribunal had failed to consider various pieces of evidence enumerated by it in the application. The Tribunal rejected the application holding that there was no apparent error or record which would permit the Tribunal to undertake review of its own order. On a reference to the High Court Held that the finding of the As .....

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rawn by bearer cheques and there was no trace or identity of the person withdrawing the amount from the bank accounts. Both the Commissioner (Appeals) and the Tribunal had come to the conclusion that in such circumstances the likelihood of the purchase price being inflated could not be ruled out and there was no material to dislodged such finding. The assessee had by evidence available on record made it possible for the recipients not being traceable for the purpose of inquiry as to whether the .....

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e bogus purchases as the profit embedded in such transaction. The head note is as under: Income from undisclosed sources - Assessee trading in steel- Finding that purchase recorded by it were not bogus but from other parties not recorded in books - Estimation of profit element embedded in purchases Tribunal justified in estimation on the basis of facts Income tax Act 1961. The assessee was engaged in the business of trading in steel on wholesale basis. During the course of the reassessment proce .....

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t of ₹ 41,04,903/- to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at ₹ 5 lakhs. The Commissioner (Appeals) held that the assessee had made purchases from other parties in the open market. Therefore he retained 30 percent of the purchases cost at the probable profit of the assessee. He reduced the additions from ₹ 41,04,903/- to ₹ 12,31,471/- and deleted the balance of ₹ 28,73,432/-. While d .....

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ose mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the income of the assessee. In essence the Tribunal only estimated the possible profit out of purchases made through non genuine parties. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick could be adopted. 6.9 On consideration of the facts available on record that Shr .....

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le must also be bogus. However, if it is possible to complete the sales or the production as shown, even without the material involved in the suspicious purchases, it needs to be shown whether the sale transaction was effected or production was done even without using such material or whether such materials were also used. Unless it is shown that such materials were not used in corresponding sales or the production as shown, purchases cannot be held bogus and it will be a case of purchase from b .....

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py of purchases bills, confirmation and corresponding sales in respect of purchases. As mentioned above the AO has never disputed of sales receipts. Since the sales receipts was not doubted or disputed by the A.O and he has accepted the sales receipts of the appellant as it is, therefore, the AO cannot deny that purchases were not made by the appellant and the material was not used for sale. 6.11 The AO had made the addition as Shri Rajendra Jain is engaged in accommodation entries. This may be .....

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There was no detailed investigation made by the AO himself. It is also found that the payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash back from the suppliers. Merely because the suppliers did not appear before the AO or some confirmation letters were not furnished, one cannot conclude that the purchases were not made by the assessee. This view is supported by the deci .....

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s. The AO has not brought any material on record to show that there is suppression of sales. It is basic rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchase from sales. Estimation of profit ranging from 12.5% to 15% has been upheld by the Hon'ble Gujarat High Court in the case of CIT vs. Simit P. Sheth 356 ITR 451 (Guj) depending upon the nature of business. 6.13 Considering the totality of the facts before me, as .....

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6,80,467/- ₹ 13,35,058/-) The ground raised are partly allowed. The assessee had claimed that purchases were genuine and submitted quantitative reconciliation and correlation of the purchases with sales . The assessee also claimed that the purchases of the diamond so made from these two parties were infact exported and custom authorities had endorsed on the export documents. It was claimed that the purchases and sales were entered in books of accounts and nothing has been found by the AO a .....

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. 133(6) issued by the AO . The assessee also could not produce this party before the authorities below. The said purchases are existing in books of accounts of the assessee and onus is on the assessee to prove that the purchases are genuine. Under these circumstances , the possibility of assessee buying the material actually from grey market at lower rates and obtaining corresponding bills from the said parties namely AVI Export and Rajeev Impex to reconcile the quantitative records and books o .....

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CIT(A) appears to be reasonable keeping in view factual matrix of the case and in such type of cases, fair estimation of profits is required to be made which requires some guess work and in our considered view, the estimation made by learned CIT(A) is reasonable and fair as it could not be said to be arbitrary or excessive to call for interference by us and more-so estimation made by learned CIT-A is backed by judicial precedence as is found mentioned in learned CIT(A) appellate order . The lear .....

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semi-precious stones. In the course of assessment, the Assessing Officer noticed the following defects in the books of account of the assessee : '1. The assessee has not maintained and kept any quantitative details/stock register for the goods traded in by the assessee. 2. There is no evidence on record or document to verify the basis of the valuation of the closing stock shown by the assessee. The assessee is not able to prepare such details even with the help of books of account maintained .....

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ent for the assessment year 1997-98. 7. M/s. Dhadda Exports, another assessee dealing in same items, but doing export business declared GP rate of 43.8 per cent (even without considering the value of export incentives) in assessment year 1997-98.' 5. Thereafter, the books of account of the assessee were rejected by the Assessing Officer and he resorted to best judgment assessment under section 144 of the Income-tax Act. The Assessing Officer in the assessment order mentioned some comparable .....

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