TMI Blog2019 (9) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... de purchases in the grey market without paying VAT, but obtained only the accommodation entries. Further as per the report of the task group constituted by the Department of Commerce the margin in trading in the diamond industry was only 1 to 3%. Taking the average of the industry average i.e. 2% and the advantage which the assessee got from purchases from the gray market i.e. 1% towards VAT, in our view at best the disallowance can be made only at 3%. Therefore,profit element margin embedded in these purchase transactions should be taken @3% for these Assessment years i.e. A.Y.2011-12 2012-13. Accordingly, we direct the Assessing Officer to estimate the profit element @3% of the purchases treated as non-genuine and re-compute the income of the assessee for all these Assessment years. - ITA NOs. 1575, 1576, 1577 & 1578/MUM/2018 - - - Dated:- 30-9-2019 - Shri C.N. Prasad, Hon'ble Judicial Member And Shri M. Balaganesh, Hon'ble Accountant Member Assessee by: Shri B.V. Jhaveri Department by: Shri Chaitanya Anjaria ORDER C.N. Prasad (JM) 1. All these appeals are filed by the assessee against common order of the Learned Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een actual purchases and bogus purchases. 5) The Assessing Officer has erred in law and on facts by charging interest u/s.234B, 234C and 234D of the Act. 4. In Ground No.1 of grounds of appeal, assessee has challenged the reopening of assessment and order passed u/s. 143(3) r.w.s. 147 of the Act dated 03.03.2016 as bad in law and void abinitio. 5. At the outset, Ld. Counsel for the assessee submits that this is a case where the original assessment was made u/s. 143(3) of the Act and subsequently the assessment was reopened beyond four years from the end of the relevant assessment year and the proviso to section 147 of the Act applies. Referring to Page No. 37 of the Paper Book, Ld. Counsel for the assessee submits that in the course of original assessment proceedings the Assessing Officer has called for the details in respect of purchases and sales made by the assessee vide questionnaire dated 18.07.2012 along with various details. Ld. Counsel for the assessee referring to page Nos. 38 to 40 submits that all the details called for by the Assessing Officer in the questionnaire including purchases, details of stocks, export invoices, details of supplies along with copy of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer by way of questionnaire required the assessee to furnish various details like purchase invoices, export sales, opening stocks, carat and rate for which sales were made etc., and the assessee has furnished all the details as required by the Assessing Officer. Considering the details furnished by the assessee and the explanations given as to why the assessee suffered losses during the year, the Assessing Officer completed the assessment u/s. 143(3) of the Act. Subsequently the assessment was reopened by issue of notice u/s. 148 of the Act dated 11.02.2015 after a period of four years from the end of the relevant Assessment Year i.e. 2010-11. When an assessment u/s.143(3) of the Act was made and such assessment is reopened beyond a period of four years from the end of the relevant assessment year the proviso to section 147 of the Act would apply according to which the assessment can be reopened only when there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. In the case on hand for the relevant assessment year the assessee has furnished all the necessary details and materials for completion of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee s plea that no fresh material before the Assessing Officer warranting reopening, is not relevant. 14. In the case on hand the Assessing Officer recorded reasons that the assessee had availed accommodation entries on bogus bills from M/s.Nice Diamonds and M/s. Nice Diamonds is belongs to group of Shri Bhanwarlal Jain where they have admitted in the course of the search that M/s. Nice Diamonds is managed by them and they are bogus hawala dealers. Therefore, in our view the Assessing Officer has reason to believe that income had escaped assessment based on the above information and formed an opinion by himself and there is no borrowed satisfaction. Thus respectfully following the above judgement of the Hon'ble Supreme Court in the case of CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., (supra) we uphold the reopening made by the Assessing Officer u/s. 147 of the Act for the A.Ys. 2011-12 and 2012-13. The case laws relied on by the Ld. Counsel for the assessee was considered by us and find that the ratio of the judgment has no application to the facts of the assessee s case. 15. In view of the above position of law, the Ld. CIT(A) has rightly confirmed the reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions, perused the orders of the authorities below. The Ld. CIT(A) considering the submissions, evidences furnished by the assessee, the averments of the Assessing Officer and the instructions of CBDT held that only the profit element embedded in such purchases shown to have been made from the non-existing parties are to be brought to tax. Accordingly, Ld.CIT(A) sustained the estimation of profit element at 8% adopted by the Assessing Officer observing as under: - 7.3.25 It is well known that if purchases are made from open market without insisting from the genuine bills, the suppliers may be willing to sell those products at a much lower rate as compared to the rate at which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. There may be various factors due to which there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted for goods. There may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture of sale of goods in question. The suppliers or the manufacturers make a substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the acceptance of profit at 6% or above as for a particular assessment year will not be a precedent for that assessee or for any other assessee. Further, it would not be applicable where there is information regarding escapement of income. However, the persuasive value of the aforesaid instruction cannot be ignored. It is also observed that recently the Hon'ble ITAT, Mumbai in a recent decision dated 19.05.2017 in the case of M/s Dhadda Gems Ltd. vs. ITO 5(1 )(3), Mumbai in ITA No. 7310 to 7314 has sustained an addition @ 8% of the purchases shown from the impugned bogus parties, hence the profit embedded in accommodation entries of purchase can be taken as an equivalent @ 8% of the purchase amount, which results from the saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture of and sale of goods in question, which is transferred to the purchaser, when purchases are made without genuine bills . As it is an estimate of the profit embedded in purchase, it cannot be allowed to be adjusted against any subsequent profit arising from the sale of the materials. Hence all the additions made on accoutn of profit embdded in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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