TMI Blog2018 (4) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... .It is also found that DD had filed VAT returns. Addition u/s 68 - Held that:- In the case of Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: "The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries. - ITA No. 7049 & 7050/Mum/2016, ITA No. 7099 & 7102/Mum/2016 - - - Dated:- 13-4-2018 - S/Shri Rajendra, Accountant Member and Sandeep Gosain, Judicial Member For the Appellant : Shri Rajesh Kumar Yadav-CIT-DR For the Respondent : Shri Vimal Punmiya ORDER Per Bench: Challenging the orders, dated 26.09.2016, of CIT(A)-29, Mumbai, the Assessing Officer (AO) and the assessee have filed cross appeals for the above mentioned assessment years (AY.s).Assessee, an individual, is engaged in the business of trading in bullion and jewellery. Initially the returns of incomes were processed u/s.143(1) of the Act.Subsequently notices u/s.148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d confessed that the group was issuing bogus bills and was providing accommodation entries. 4.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA)and made detailed submissions. After considering the available material, he observed that mere payment by account-payee-cheques would not be sacrosanct. He referred to the case of Precision Finance(P)Ltd.(208ITR465)of the Hon Calcutta High Court and held that the AO had held that the accommodation entries were given in form of cheques/ RTGS,that same were routed through bank accounts of various bogus entities of BJ Group, that BJ had admitted that his group was issuing bogus bills, that later on BJ had retracted his statement, that those evidences could not be overlooked, that the assessee had made purchases from some other parties probably in cash, that it had taken bills from the other parties to regularize the transactions. He referred to the case of Vijay Proteins Ltd. (58ITD428), Sanjay Oil Cakes (316 ITR 274) and Simit P Seth (356ITR451)and held that once the sales were accepted by the AO the very basis of purchases could not be questioned, that the entire purchase price co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings,that the AO had not proved that the returns of incomes of the suppliers were non genuine,that in response to the notices issued u/s.133(6)of the Act the suppliers had admitted to have supplied goods to the assessee,that the AO deliberately did not mention said fact while completing assessment order, that regular stock registers were maintained by all the suppliers,that there was no evidence of cash withdrawal,that the AO had not rejected the sales made by the assessee,that basic conditions for invoking the provisions of section 69 C were not fulfilled.He referred to cases of Indo Unique Trading Pvt.Ltd.(ITA.s/6341/ Mum/2016 6721/Mum/2016-AY.07-08,dtd.16/8/2017);wherein the addition made by AO were deleted by the Tribunal.In that case statement made by BJ were considered(Pg.118-124 of the Legal PB-II).He also relied upon the cases of Ronak Gems Pvt.Ltd.(ITA/3118/Mum/2017,AY.2007-08,dated 04/10/2017);M/s.Vaman International Pvt.Ltd. (ITA.s/1020 1041/Mum/ 2017,A.Y.2007-08,2008-09 appeals for other AY. s);Kaysons Agencies Private Ltd.(ITA/3812/ Mum/2014,AY.2005-06,dtd.17/3/2017);M/s. Fancy Wear(ITA/ 1596/Mum/2016,AY.2011-12).He also referred to VAT returns file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was genuine. Parties have filed their acknowledgment of Income-tax return filed, copy of invoice, ledger account of the assessee firm in their books showing payments received from the assessee. However, the Assessing Officer not convinced with the submissions of the assessee and since no delivery challans were furnished to prove the delivery of goods have been actually made by the alleged suppliers to the assessee and since the Directors/ Proprietors of the supplier companies/firms have deposed on oath that all the concerns controlled and managed by them are not doing any real trading in diamonds but indulged in paper transaction only, the Assessing Officer rejected the submissions of the assessee that the purchases made from these entities are genuine. The Assessing Officer stated that the statement recorded from Shri Bhanwarlal Jain clearly established that the concerns controlled and operated by them are not carrying out any genuine business activity. 4. It was also observed by the Assessing Officer that the report received from the office of the DGIT (Investigation) during the course of post search inquiries the modus-operandi followed by the group concerns have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t element in the purchases at 12.5% for all the Assessment Years 2011-12 to 2013-14. 6. Before us the Learned Counsel for the assessee submits that assessee is into trading and export of diamonds and the disallowances were made only based on the admission of Shri Bhanwarlal Jain in the course of search and seizure proceedings and since the parties have confirmed that the transaction has entered into by the assessee are genuine the purchases cannot be treated as nongenuine, especially since sales are not disputed and they have accepted. Ld. Counsel for the assessee further submitted that, assessee submitted Copies of purchase invoices, Ledger confirmations, Copies of Bank Statements reflecting payments made to the suppliers and Stock register reflecting inward of goods purchased from them and corresponding sales in support of genuineness of its purchases. Learned Counsel for the assessee submitted that AO issued notices u/s. 133(6) calling for relevant details from the parties. Each of the party has replied and submitted Ledger A/c of the assessee in their books of accounts, Copies of Sales Invoices issued by them, Bank statements reflecting the payments made by the assessee to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y issuing summons to them requiring their personal attendance. 11.The facts and circumstances as outlined above, clearly suggest that the purchases by the assessee from M/s. Daksh Diamonds cannot be doubted but a major flaw in these transactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address. However, Ld. Counsel for the assessee submitted that the fact is that the AO issued notices u/s. 133(6) to all the parties which were not only served upon them but were also responded by all of them. 12. Ld. Counsel for the assessee submitted that the Ld.CIT(A) agrees with the fact that the AO has merely relied upon the statement recorded by the Investigation wing and in-depth investigation was not carried out to the extent required. The Ld.CIT(A) ought to have made the investigation either on his own or through the AO which in his opinion was required before confirming any addition. The statements of Mr. Bhanwarlal Jain and others relied upon by the AO have been retracted by them. Learned 9 Counsel for the assessee submitted that the impugned parties have been engaged into imports as well whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the Assessment Years 2011-12 to 2013-14. The Ld.CIT(A) in his order observed as under: 11. I have carefully gone through the assessment order passed by the Assessing Officer and the written submissions of the appellant on the issue. I have also considered various case laws relied upon by the appellant. My observations are as under. 12. The AO has formed his view about the bogus nature of the purchase made by the appellant from M/s.Daksh Diamonds on the basis of various incriminating. documents and evidences seized during the course of search seizure action in the case of Bhanwarlal Jain Group, which has established that the said group was engaged in providing accommodation entries of bogus sales/purchases/loans to various beneficiaries. 13. In my opinion, simply relying upon the information received from the DGIT (Inv.) regarding the default committed by M/s. Daksh Diamonds cannot be taken as the sole basis to treat the entire purchases made from it as bogus or non-genuine. The Assessing Officer has primarily relied on the conclusions drawn by the Investigation Wing on the basis of the statement given before the Income tax authorities and heavy reliance on such sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ascertain the correctness of the profits shown by the appellant for the period under consideration. This verification was also vital to determine as to whether the purchase prices shown on the bills/invoices, are as per prevailing market prices of the materials purchased and to ascertain that the price paid for the materials purchased from M/s.Daksh Diamonds is not over invoiced. In the absence of any such verification of the correctness of the price paid for the materials purchased by the appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from M/s.Daksh Diamonds. In view of the same, the possibility of over-invoicing of the materials purchased to reduce the profit, 'cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from M/s. Daksh Diamonds. The disallowance of the entire amount of purchases from M/s.Daksh Diamonds would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. (Emphasis supplied) 19. Similarly while dealing with an identical issue, in the case of CIT v. Bholanath Poly Fab (Purchase)Ltd. ITA.No.No. 63 of 2012, in the order dated 23/10/2012, the Hon'ble High Court of Gujarat has held as under:- 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 assesses did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that the purchases by the assessee are bogus/non genuine. However, the Ld.CIT(A) observed that purchases made cannot be doubted and there is a major flaw in these transactions is the unverifiable nature of transactions as the parities are not found available in the given address. However, we see that the parties have responded in these cases for the notices issued u/s. 133(6) of the Act, they have filed Ledger Account of the assessee in their books of accounts, Copies of Sales Invoices issued by them, their Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns filed by them, Audited Profit Loss A/c and Balance Sheets to show that the transactions of sales made to the assessee are genuine. On a careful consideration of the submissions made by the assessee, we find considerable force in the submissions not to treat the purchases made by the assessee from the parties as non-genuine/bogus. 18. The reason for treating these purchases as non-genuine /bogus is the statements given by Bhanwarlal Jain group and non-submission of delivery invoices by the assessee. It is the submission of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions of the assessee that the purchases cannot be treated as bogus simply relying on the statements in the case of Bhanwarlal Jain group. While holding so the Coordinate Bench observed as under: - 10. We have heard rival contentions and perused the record. We notice that the assessing officer has reopened the assessment for the second time after expiry of four years from the end of the assessment year, on the basis of information received from the investigation wing about the bogus nature of transactions entered by Shri Bhanwarlal Jain group. Even though the AO has mentioned the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, yet he has not specified the manner of failure. 11. On the contrary, we notice that the assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. 21. In the result,appeals of the assessee are allowed. Considering the above,we are of the opinion that the issue of bogus purchase of diamonds from BJ group has been already been deliberated upon by the Tribunal and it stands decided.Facts of the case under consideration are almost identical to the facts of Vama International(supra).In that case also the AO had added the entire purchases to the income of the assessee and the FAA had given part relief to the assessee.In the instant case,the assessee was denied the opportunity of cross examination though it had made a request to the AO during the assessment proceedings.By not allowing cross examination of the third party,whose statement was being used against the assessee,the AO had violated the basic principles of natural justice.Only on that count the order can be quashed.But, we are considering other factors.BJ has retracted his statement.So,the authenticity of the material relied upon by the AO reduces to a great extent.The supplier has admitted the transaction and the AO has not doubted the sales.It is also found that DD had filed VAT returns.Considering the all these facts and respectfully following the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavit LD had admitted of advancing loans,that identity, creditworthiness and genuineness of the transactions were proved beyond doubt,that money was returned back to the lender in the subsequent year,that LD had admitted receiving back the money,that the assessee was one of the creditors of LD.He referred to the cases of Sanghavi Reality Pvt.Ltd.(ITA.s/3018-20/Mum/2017 AY.2008-09-2011-12),Vikram Muktilal Vora(ITA/842/Mum/2017,AY.2007-08),Gujarat Constr -uction(ITA/7040/Mum/2016,AY.2007-08) 8.3.We have heard the rival submissions and perused the material before us.We find that the FAA had observed that the transaction with LD could not be considered genuine as it had advanced unsecured loans to the assessee.It is found that LD in its affidavit has admitted that it had advanced loan to the assessee. 8.4.We find that identical issue was decided by us,in the case of Jitendra M Kitawat(HUF)that was decided by us on 11.04.2018(supra).We are reproducing the order dealing with the issue and it reads as follow: 8.3.Here we would like to refer to the case of Reliance Corporation (ITA/1069-71/Mum/ 2017, AY.2008-09 to 2010-11,dtd.12/04/2017)wherein the similar issue was dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in response to notice u/s 133(6) of the Act However, the AO acting solely on the information received from DGIT(Inv), Mumbai rejected the contentions of the assessee and framed the assessment as stated above. 5.Aggrieved by the order of the AO, the assessee preferred and appeal before the ld.CIT(A) who dismissed the appeal of the assessee ex-parte on the ground that the assessee failed to appear before the ld.CIT(A) by observing and holding as under : 4 Decision on grounds of appeal no.1: 4.1 The relevant facts are like this. The assessee is a firm which is engaged in the business of builders developers. A search seizure action was conducted in the Bhanwarlal Jain group of cases by Investigation Wing Mumbai. As a result of search, it was found by the Investigation Wing that this group is a leading entry provider of Mumbai. There are many concerns floated by the group who provide accommodation entries of bogus loan The AO received an information that the appellant has also taken loan from concerns found in the list of entry providers related with Bhanwarlal Jain group of cases. The AO asked the appellant to show cause as to why loan taken from Mls Laxmi Trading Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be gauged vis a-vis the transactions and other three appeals which occurred between the assessee and the creditors. The ld. AR submitted that it was not the burden or responsibility of the assessee to find out the source of creditors or the capacity of the creditors in order to prove the genuineness of transactions as has been held by the Hon ble Gauhati High Court in the case of CIT V/s Smt. Sangmitra Bharali reported in 361 ITR 481). The ld AR further submitted that the addition was made out of unsecured loans raised by the assessee from the group concern of Bhanwarilal Jain Group engaged in providing accommodation entries. On the contrary , there was no indication or proof that loans taken by the assessee were merely accommodation entries and the money actually gone back to the lenders . The ld.AR also submitted that the creditors appeared before the AO in response to the notice issued u/s 133(6) and during the course of recording statements by the AO the lenders confirmed the loans having given to the assessee. Besides all the necessary details were submitted before the AO during the assessment proceedings.The assessee also provided the loan confirmation from the creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up and the assessee was found to be the one of the beneficiaries of the said accommodation entries. The ld. DR submitted that in the present case though the assessee has filed all the necessary information but since the assessee borrowing monies from the tainted parties who were provided accommodation entries, it is beyond doubt that money borrowed by the assessee was nothing but accommodation entries. Lastly, the ld. DR prayed that in view of the facts and the order of the FAA should be upheld by dismissing the appeal of the assessee. 8.We have heard the rival contentions perused the material placed before us including the orders of authorities below and orders relied upon by the parties. We find that undisputedly the assessee has borrowed money by way of loan from three aforesaid three parties i.e M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems from whom the assessee borrowed the money and total outstanding including the interest as on 31.3.2010 were amounting to ₹ 1,29,04,231/-. The case of the assessee was re-opened upon receiving the and other three appeals information from DGIT(Inv), Mumbai that the assessee was one of the beneficiary of the said accommodati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1961 [Corresponding to section 34(1) of Indian Incometax Act, 1922] Income escaping assessment Illustrations Assessment year 1958-59 Whether reasons for formation of belief contemplated by section 147(a) for reopening of assessment must have rational connection with or relevant bearing on formation of belief, and rational connection postulates that there must be direct nexus or live link between material coming to Income-tax Officer s notice and formation of his belief that there has been escapement of assessee s income from assessment in particular year because of his failure to disclose fully and truly all material facts Held, yes Whether duty cast upon assessee is to make true and full disclosure of primary facts at time original assessment, and it is for Income-tax Officer to draw correct inference from primary facts Held, yes Whether if Income-tax Officer draws inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment Held, yes ITO completed original assessment by allowing deduction of interest paid to certain creditors Subsequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haser) - Purchaser of car advanced certain sum to assessee - Identity of purchaser and genuineness of transaction was established - Whether transaction could not be treated as bogus and impugned amount could not be treated as an undisclosed income of assessee - Held, yes [Para 64] [In favour of assessee] In the case of Gangeshwari Metal (P)Ltd (supra), the Hon ble Delhi High Court has held as under : There are two types of cases, one in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer, after noting the facts, merely rejected the same. [Para 9] There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the relevant material. In such an eventuality no addition can be made under section 68. [Para 10] In view of above, impugned order passed by the Tribunal was to be upheld. [Para 11] In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of ₹ 17,27,2501- under section 68 was not justified. In the case of Nemi Chand Kothari (supra), the Hon ble High Court has held as under : 16. A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the and other three appeals assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the trasnactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of the creditors to show that their Sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources. (ii) that no assessment could be made contrary to the provisions of law. In the instant case, the very basis for making the assessment was under challenge. If the assessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. Sanghavi Reality Pvt.Ltd.( supra), Vikram Muktilal Vora(supra),Gujarat Construction(supra),the order of the Reliance Corporation(supra) has been followed.As the fact of the case under consideration are similar to above referred cases,so,following those orders,we decide seventh ground of appeal,raised by the assessee,in its favour. Following the above referred order of the Jitendra M Kitawat-HUF(supra),we decide GOA 7 in favour of the assessee. ITA/7099/Mum/2016-AY.2009-10: 9.Effective ground of appeal,raised by the AO,for the year under consideration,is not sustaining the addition of ₹ 1.03 crores made invoking the provisions of section 69C of the Act.We find that facts for the year are identical to the facts of 2007-08-the only difference is the names of suppliers.As per the AO the alleged bogus purchases were made from Kothari Co.(KC),LD, Megha Gems(MG)and Minal Gems(Minal).Following our order dtd.11.04.2018 in the case of Jitendra M Kitawat(HUF),we dismiss the effective ground of appeal raised by the AO. ITA/7049/Mum/2016-AY.2009-10: 10.First effective ground(GOA-6)raised by the assessee is about confirming the addition of ₹ 12.99 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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