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TMI Blog2021 (10) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... set of 14 appeals, consisting appeal and cross by Revenue as well as by different assessee's are directed against the different orders of ld. Commissioner of Income tax (Appeals)-3, Surat for different assessment years. In all appeals and in cross appeals the parties have raised certain common grounds of appeal, facts in all cases are almost similar except variation of figures of additions on account of bogus purchases, the ld CIT(A) has also passed almost similar order in all cases, therefore with the consent of the parties, all the appeal were clubbed, heard and are decided with common order. The parties were agreed to treat the appeals of Pankaj K. Chaudhary as lead case and the decision thereof would apply on all appeals. 2. The Revenue in its appeal in Pankaj K. Chaudhary has raised following grounds of appeal: (1) On the facts and circumstances of the case and in law, the CIT(A) has erred in restricting the addition made by the AO on account of disallowance of non-genuine purchases from Rs. 4,34,00,343/- to Rs. 54,25,040/-. (2) On the facts and circumstances of the case and in law, the CIT(A) has erred in directing to make an addition of 5% (*) of unverified purchases wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai it was informed that a search and seizure action was carried out by Investigation wing-Mumbai on Bhanwarlal Jain Group on 03.10.2013, which resulted in collection of evidence that Bhanwarlal Jain, his sons Rajesh and Manish were operating certain benami concerns in the name of their employees and staff for providing bogus accommodation entries of unsecured loans, sale and purchase of different kinds of material. It was unearth that said Bhanwarlal Jain Group provided accommodation entries of Rs. 25,000 crore. The statement of Bhanwarlal Jain was recorded under section 132(4) of the Act, wherein he had admitted that his family members are managing various entities which are providing accommodation entries. During the course of search, blank cheque book signed by dummy partners / directors /proprietor of entities were found and seized. It was informed that assessee is one of the beneficiaries of bogus purchase form three following entities managed by Bhanwarlal Jain Group. The assessee has shown following purchased from the said parties: Name of the Party Amount Parvati Export 2,00,06,398/- Mahalaxmi Gems Pvt Ltd 2,28,37,445/- Mayur Export 5,56,500/- 4,34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation Wing of Bhanwarlal Jain Group made addition of 100% of the purchases shown from all three entities. 7. Aggrieved by the 100% addition of impugned purchases in the assessment order, the assessee filed appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee challenged the validity of reopening as well as additions on merit. The assessee filed detailed written submission. The submission of assessee is recorded in para 7 of the order of ld.CIT(A). In the submission, the assessee explained that AO has not mentioned in the reasons recorded as well as in the assessment order, if he has taken prior approval of higher authorities as required under section 151 of the Act. Therefore, reopening of assessment under section 147/148 of the Act is void and need to be quashed. No independent enquiry is conducted by AO before issuing notice under section 148 of the Act. The AO purely acted on the information received from the Investigation Wing. The AO was required to form his own opinion that income has escaped assessment. The AO has not applied his mind to the information the basis and the material of the so-called information. The AO acted on vague information. During the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by the ld. CIT(A). The ld. CIT(A) after considering the submission of assessee on the validity of reopening of the assessment held that the assessee is beneficiary of accommodation entry, the entry operator admitted before Investigation Wing about the accommodation entry that he is providing bogus entries to many persons. On the basis of such report, the AO had reason to believe that income has escaped assessment. The ld.CIT(A) held that on examination of record, he noted that AO relied on the report of Investigation Wing without furnishing copy of material relied upon to the assessee. The ld.CIT(A) concluded that in holding assessment as invalid for the above reason without going into merit would be amount to gave undue benefit to the assessee for technical mistake or omission by AO and the principle of equity do not allow this, without considering the grounds on merit. 9. On merit, the ld.CIT(A) after discussing the submission of assessee held that AO has not discussed about any details of books of accounts, documents, stock register produced by assessee during the assessment. The AO neither examined nor found any defect in the document to discredit the same. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in that case was also engaged in the trading of polished diamonds. The AO in said case made disallowance of entire bogus purchase. The ld.CIT(A) dismissed the appeal, however, the Tribunal gave partial relief to the assessee directing and sustained the addition @12%. And on further appeal before Hon'ble High Court, the disallowance was sustained at Gross Profit Rate of 5%, which is average rate of profit in industry. The ld. CIT(A) further held that in some other similar cases though he has sustain 5% of Gross Profit Rate considering the fact that where Gross Profit shown by assessee is more than 5%. However, in the present case, the assessee has merely shown Gross Profit Rate only at 0.78% of turnover, accordingly, the ld.CIT(A) was of the view that disallowance of 12.5% of impugned purchases/bogus purchases would be reasonable to meet the end of justice, hence the disallowance was restricted to 12.5% of the impugned purchase. 11. Aggrieved by the order of ld. CIT(A), both the parties have filed cross appeals. The assessee has challenged the validity of reopening as well as sustaining the addition to the extent of 12.5% only. Likewise, the Revenue has assailed the order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Peass Industrial Engineers (P) Ltd Vs DCIT [2016] 73 taxmann.com 185 (Gujarat High Court), * ITO Vs Purushttom Dass Bangur [1997} 90 Taxman 541 (SC) and * Mayank Diamond Private Limited (2014) (11) TMI 812 (Gujarat High Court). * AGR Investment Vs Additional Commissioner 197 Taxman 177 (Delhi) and * Chuharmal Vs CIT [1998] 38 Taxman 190 (SC). 14. On the other hand, the ld.AR of the assessee submits that he has challenged the validity of reopening as well as restricting the addition to the extent of 12.50% of the alleged bogus purchases. The ld.AR of the assessee submits during the assessment, the AO has not made any independent investigation. The AO reopened the case of the assessee on the basis of third party information without making any preliminary investigation. The AO received vague information about providing accommodation entry by Bhanwarlal Jain Group. No specific information about the accommodation entry obtained by assessee was received by AO. There is no live link between the reasons recorded qua the assessee. Therefore, the re-opening is invalid and all subsequent action is liable to be set aside. 15. On account of additions of bogus purchases, the ld.AR s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkaj Kanwarlal Jain HUF Vs. ITO 2(3)(8) Surat ITA.No.269/SRT/2017 16. In the rejoinder submissions the ld. CIT-DR for the revenue submits that that rigour of the rules of evidence contained in the Evidence Act is not applicable before the tax authorities. It was submitted that the ratio of various case laws relied by the ld. AR for the assessee is not applicable on the facts of the present cases. The ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. 17. We have considered the submissions of the parties and have gone through the order of the lower authorities. We have also deliberated on each and every case laws relied by both the parties. We have also examined the financial statement of all the assessee(s) consisting of computation of income and audit report. We have also gone through the documentary evidences furnished in all cases. Ground No.1 in assessee's appeal relates to the validity of reopening. The ld AR for the assessee vehemently argued that the AO reopened the case of the assessee on the basis of third party information, and without making any preliminary investigation, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries, and assessee was one of such beneficiary, assessing officer was justified. Hence, the ground No. 1 in assessee's appeal is dismissed. 19. Ground No. 2 in assessee's appeal and the grounds of appeal raised by the revenue are interconnected, which relates to restricting the disallowance of bogus purchases to the extent of 12.5%. The AO made of 100% of purchases shown from the hawala dealers/ entry provider namely Bhanwarlal Jain. We find that the AO while making additions of 100%, of disputed purchases solely relied on the report of the investigation wing Mumbai. No independent investigation was carried by the AO. The AO has not disputed the sale of the assessee. The AO made no comment on the evidences furnished by the assessee. We further find that ld CIT(A), while considering the submissions of the assessee accepted the lapses on the part of the AO and noted that no sale is possible in absence of purchases. The Books of the assessee was not rejected by the AO. The ld CIT(A) on further examination of the facts and various legal submissions find that Ahmedabad Tribunal in Bholanath Poly Fab Private Limited (supra) held that in the such cases the addition of bogus purchases w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs. 1.86 Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No. 2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed. 22. In the result the appeal of revenue is dismissed and the appeal of the assessee is partly allowed. Manish Aggarwal (AY 2007-08 & 2012-13) 23. The Revenue in Manish Aggarwal case in ITA No.1159/AHD/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case and in law, the CIT(A) has erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding have not been fulfilled. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. 3. The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal. 26. The Assessee raised the following grounds of appeal in ITA No.1386/AHD/2017 for A.Y. 2012-13 are as under: "1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. (3) The appellant craves leave to add, alter or delete all or modify any or all the above grounds of appeal. 30. The assessee in ITA No.248/SRT/2017 (AY 2013-14) raised the following grounds of appeal: (1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on alleged bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without providing copy of statements relied upon. (2) The appellant craves leave to add, alter or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross examination, without any corroborative evidence and without providing copy of statements relied upon. 33. Considering our decision in para 21 (supra) in Pankaj K Chaudhary, wherein we have sustained the disallowance @6% of the disputed/ bogus purchases, thus, following the principal of consistency the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed. Rajkumar D Jain (AY 2012-13) 34. The Assessee has raised following grounds of appeal: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering that the assumption of jurisdiction by the Ld. Assessing Officer is bad in law as the conditions laid down under the Act for initiating reassessment proceeding have not been fulfilled. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profit @ 12.50% on allege bogus purchase, without appreciating the fact that the payment was made through cross account payee cheque and the same goods were subsequently sold and quantity is tallied and the addition was made without providing any opportunity of cross examination, without any corroborative evidence and without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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