TMI Blog2022 (8) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... direction. Addition u/s 68 on account of unverifiable purchases - mistake of quoting wrong Section - HELD THAT:- The matter discussed by the AO in the assessment order was related to bogus purchases therefore ld CIT(A) corrected unintentional mistake committed by AO that is, corrected the mistake of quoting wrong section. We note that just to quote wrong section while making an assessment order does not vitiate the findings of the entire assessment order. CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessing officer are in the nature of bogus purchases, then it would not mean enhancement of assessment, and just because ld CIT(A) made correction in the section in accordance with the substance discussed in the assessment order does not vitiate the appellate order. As relying on case of Navinchandra Mafatlal [ 1961 (1) TMI 9 - SUPREME COURT] we dismiss the ground no.2 and 3 raised by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corresponding export and import, the correctness of this account was required to be verified for thoroughly which was not done during the course of assessment proceedings therefore order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. It is also to be noted that ld Counsel, during the course of hearing stated that assessee is not exporter, however, on examination of Balance Sheet of the assessee, the ld PCIT noticed that assessee has shown foreign exchange gain/loss in its Balance Sheet therefore if the assessee is not exporter then wherefrom these foreign exchange gain and loss arised in the Balance Sheet. Hence, we are of the view that assessing officer failed to conduct inquiry. - Decided against assessee. - ITA No.128/SRT/2020 And Cross Objection No. 13/SRT/2020 [Arising in ITA No.128/SRT/2020] And ITA No.313/SRT/2019 - - - Dated:- 14-7-2022 - Shri Pawan Singh, JM And Dr. A.L. Saini, AM For the Assessee : Shri Himanshu Gandhi, CA For the Respondent : Shri H. P. Meena, CIT(DR) ORDER PER DR. A.L. SAINI, AM: This bunch of three appeals pertaining to single assessee for Assessment Year (AY) 2014-15. In ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based seven parties namely (i) Vardhaman Trading, (ii) Sahil Enterprises (iii) Mahak Enterprise (iv) Sparsh Impex (v) Arihant Exports (vi) Yatin Enterprise (vii) Vatsal Enterprise. The Inspector was deputed to serve these summons to the concerned parties. Then the Inspector so appointed has reported to the assessing officer that out of the seven parties against whom summons were issued, he was able to serve only one summon to the party namely, M/s Vatsal Enterprise, Surat. Remaining summons were not served due to various reasons. Later on, assessing officer has also issued notice to these seven parties at the below given address for personal attendance on 21.12.2016. Sr No Name of the party Address 1 Vardhaman Trading Shop No 2/3,Vardhman Park, Amroli, Surat 2 Sahil Enterprises 13-14, Vardhaman park-A, New Kosad Road, Amro 3 Mahak Enterprise 9, Bagar Faliya, ModiTekra, Nana Varachha, Surat 4 Sparsh Impex Office No. 112, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that assessee has submitted bills, vouchers and all transactions were through banking channel hence the entire addition on account of unverifiable purchases should be deleted. 8. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that in the case of beneficiaries of the accommodation entry providers being Shri Rajender Jain, Shri Pravin Jain and Shri Bhawarlal Jain, this bench has taken the view to sustain addition @6% of bogus purchases. The ld Counsel submitted before us that only two parties belong to Rajendra Jain group cases, therefore in case of remaining five parties the addition should not sustain @6% of bogus purchases. We do not agree with ld Counsel`s stand, because all remaining five parties are also engaged in bogus purchases/sales, hence the issue under consideration is squarely covered by the decision of Co-ordinate Bench of this Tribunal in the case of ITO Ward3(1)(5), Surat vs. Pankaj K. Choudhary Otrs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that he was satisfied that it is a fit case for reopening under section 147 of the Act. The assessee in response to notice under section 148, filed his reply dated 28.04.2014, stating therein that return of income filed on 26.09.2007 may be treated return in response to notice under section 148 of the Act. The assessee demanded copy of reasons recorded. The copy of reasons recorded was provided to the assessee. The assessee filed his written objection on 18.12.2014. In the objection, the assessee stated that information received by AO is general in nature with no evidentiary value. In the objection, the assessee stated that it is not disclosed that the Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports are related to Bhanwarlal Jain Group. Bhanwarlal Jain has no connection with all three concerns. The assessee has never made any transaction with Bhanwarlal Jain Group. The assessee has shown purchases in the Income Tax Return for the A.Y. 2007-08 in Profit and Loss Account which includes purchase from said concerns and thus fully disclosed in the return of income and there was no escapement of income for the assessment year under consideration. The assessee also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee disclosed true and material things and the return of income and there is no escapement of income of the assessee. The re-opening of the assessment is based on third party information, which was recorded during the search action in their places. The initiation under section 148 of the Act is bad in law being based on statement of third party. The AO has not mentioned any tangible material to prove his contention. On addition, the assessee submitted that he has furnished complete evidentiary proof of purchase consisting of account information of Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports. The copy of purchase bill, one to one mapping and specific sale, stock register, bank statement and ITR acknowledgment of parties were filed before AO. The assessee reiterated that he has not dealt with Bhanwarlal Jai Group and he does not know him as far as transactions of purchase of goods are concerned. The assessee is not aware in which capacity Bhanwarlal Jain is connected with Parvati Exports, Mahalaxmi Gems Pvt. Ltd and Mayur Exports and not knows how he was authorised to give statement on their behalf. There was no corroborative evidence that assessee received a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng account. If the impugned purchases are treated as bogus, then the stock in hand will become negative from 26.06.2006 onwards and no sale is possible in absence of purchases. The AO relied on the statement of Bhanwarlal Jain recorded by Investigation Wing against, copy of purchase bill, copy of bank statement, showing payment, day to day stock register, incoming and outgoing diamonds and daily stock tally, confirmation of the impugned parties from whom the said purchases has been made, thus, the assessee practically furnished all possible evidences in support of his claim for purchases. Moreover all the payment are made by bank account. The AO has made no comments about these documentary evidences. On the aforesaid observation, the ld.CIT(A) concluded that assessment order suffer from incomplete investigation, lack of marshalling of all relevant facts and procedural loopholes. Similarly, the ld.CIT(A)also observed that there is no denying circumstances under which statement were made by Bhanwarlal Jain and the elaborate modus-operandi unearthed by Investigation Wing, Mumbai, which has created sufficient suspicion regarding the purchase made by the assessee. The said parties are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer has mentioned the additions of 5% instead of 12.5% . 12.We have heard the submission of ld.CIT-DR for the Revenue and the ld.Authorised Representative(AR) of the assessee. We have also gone through the various documentary evidences furnished by assessee. The ld.CIT-DR for the Revenue supported the order of AO. The ld.CIT-DR submits that Investigation Wing, Mumbai made a search on Bhanwarlal Jain Group. During the search and after search, the Investigation Wing made a thorough investigation and concluded that Bhanwarlal Jain Group and his associates including his sons were indulging in managing about70benami concerns. The benami concerns were engaged in providing accommodation entries. The assessee is one of the beneficiaries of such accommodation entries. In the transaction of accommodation entries, the documentary evidences are created in such a way, so that the bogus transaction is looks like genuine transaction. In bogus transaction, the fabricated evidences are always maintained perfectly. The assessee has obtained accommodation entry only to inflate the expenses and to reduce the ultimate profit. No stocks of diamonds were found at the time of search on Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same in the assessment order passed under section 143(3) on 10.03.2009. During re-assessment, the assessee again furnished complete details about the genuineness of purchases. The assessee filed confirmation purchases invoices, accounts of the parties, bank statement of assessee showing transaction to the banking channel. The AO has not made any comment on the documentary evidence furnished by assessee. The AO solely relied upon the statement of third party and the report of Investigation Wing. The report of wing and the statement of Bhanwarlal Jain were not provided to the assessee. The AO has not disputed the sales of assessee. No sale is possible in absence of purchase. The books of accounts were not rejected. The AO made the disallowance of entire purchases. The assessing officer not provided cross examination of the alleged hawala dealers. The disallowances sustained by the Ld. CIT(A) @ 12.5% of the impugned purchases, is on higher side and deserve to be deleted in total. The ld.AR of the assessee submits that entire purchases shown by assessee are genuine. In without prejudice and alternative submissions, the Ld. AR for the assessee submits that in alternative submission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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, which was vague about the alleged accommodation entry by Bhanwarlal Jain Group. And that there was no specific information about the accommodation entry availed by the assessee. There is no live link between the reasons recorded qua the assessee. We find that the assessee has raised objection against the validity of the reopening before the AO. The objections of the assessee was duly disposed by AO in his order dated 09.02.2015. The assessee raised ground of appeal before ld CIT(A) while assailing the order of AO on reopening. The ld CIT(A) while considering the ground of appeal against the reopening held that the AO has received report from investigation wing Mumbai, which indicate that the assessee is beneficiary of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ldCIT(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 was sustained to the extent of 12%, on the observation that the assessee may have made purchases from elsewhere and obtained the bills from impugned supplier to inflate Gross Profit Rate. The ld CIT(A) by considering the overall facts, concluded that the 100% disallowance of purchase is not justified. We also find that the ld.CIT(A) also considered the decision of jurisdictional High Court in Mayank Diamonds Pvt. Ltd. (supra) and compared the fact of the present case with the facts in Mayank Diamonds Pvt Ltd (supra) and noted that assessee in that case was also engaged in the trading of polished diamonds. The ld CIT(A) noted that in that case the AO made disallowance of entire bogus purchase and on first appeal ore CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue 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. 9. Since the issue raised in Revenue s appeal is squarely covered by the order of Co-ordinate Bench, in the case of Pankaj K Choudhary (supra) and there is no change in facts and law and the Revenue as well as assessee are unable to produce any documents to controvert the aforesaid findings of Co-ordinate Bench, in the case of Pankaj K Choudhary (supra). We find no reason to interfere in the said order of Co-ordinate Bench, therefore respectfully following the binding order of Co-ordinate Bench we allow Revenue s appeal partly with same direction. 10. In the result, Revenue s appeal is allowed partly. 11. Now, we shall adjudicate assessee s Cross Objection No. 13/SRT/2020, wherein the grounds raised by assessee are as follows: 1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming disallowance of Rs.73,28,630/- being 5% of suspicious purchase amount Rs.14,65,72,642/- by treating the same as non-genuine. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y AO that is, corrected the mistake of quoting wrong section. We note that just to quote wrong section while making an assessment order does not vitiate the findings of the entire assessment order. The ld CIT(A) has co-terminus power as that of assessing officer and to correct the mistake of section as per the substance discussed in the assessment order does not mean enhancement of assessment without giving notice to the assessee. That is, when the substance of the transactions, as discussed in the assessment order by the assessing officer are in the nature of bogus purchases, then it would not mean enhancement of assessment, and just because ld CIT(A) made correction in the section in accordance with the substance discussed in the assessment order does not vitiate the appellate order. For this, reliance can be placed on the judgment of the Hon`ble Supreme Court in the case of Navinchandra Mafatlal v CIT [1955] 27 ITR 245, 261, affirmed, [1961] 42 ITR 53 (SC), wherein it was held as follows: If an order is made by an income-tax Officer and even though he may state that he has not made it under any particular section of the income-tax Act, or even if he may state that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest receipt in respect of these long term loans given was shown. Therefore, applicability of section 2(22)(e) of the Act was necessarily required to be verified which was not done during the course of assessment proceedings. 20. Further, ld PCIT noticed that there was gross disproportions between the figures of foreign exchange rate fluctuation loss and fluctuation gain vis- -vis the corresponding export and import. Therefore, the correctness of the loss claimed on this account was required to be verified for thoroughly which was not done during the course of assessment proceedings. 21. In response to the aforesaid show cause notice, assessee filed written submission and contended therein that order of the AO is neither erroneous nor prejudicial to the interest of Revenue as Section 2(22)(e) apply in the hands of shareholder who received loan whereas in this case the assessee-company had given the loan and advances to those persons who are not shareholders of its. Further, in respect of issue of Forex gain loss, it has been contended that sale against H from as export sale has been wrongly treated which actually means sales to domestic customer who will export the goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the findings of the ld PCIT and other materials brought on record. We find merit in the submissions of ld DR for the Revenue, as he pointed out that parties to whom loan and advances were given, whether they were shareholders or creditors, is not clear, therefore contention of the ld Counsel can not be accepted that assessee has given loan not to the shareholders but creditors, as the assessing officer did not make inquiry to this effect. Moreover, about the issues raised by ld PCIT, assessing officer has not raised any question by way of issuing notice under section 142(1) of the Act nor assessee has replied to it during assessment stage. Therefore, it is a complete failure on the part of the assessing officer, as he did not apply his mind. The ld PCIT observed that long term loans were given by the assessee-company to various persons who appear to be related to the assessee-company and also no interest receipt in respect of these loans was shown. Therefore, provision of Section 2(22)(e) of the Act attracted in the assessee`s case which reads as under: According to Section 2(22)(e ) of the Act when a company in which the public are not substantially interested, extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of utmost importance. Similarly, ascertaining the profit ratio in concern where shareholder is a member or partner to have substantial interest is also equally important. iii. It should be confirmed that company making payment of loan/advance is a closely held company and its shareholders holding 10% or more voting power should also old substantial interest in such concern. iv. In case loans/advances including ICD/Deposits etc are made to shareholders/concerns in which shareholders have substantial interest or made on behalf of shareholders, then investigation should be made to ascertain the incidence of Deemed Dividend v. The closely held company should have accumulated profits which includes reserves and also include proportionate profit of the profit of the whole year. vi. All the factual details i.e. shareholding pattern of closely held company status of recipient of loan/advance i.e. beneficial shareholder either in individual capacity or as a member/partner of a concern, quantum of accumulated profits should be clearly mentioned in the body of assessment order. 29. None of the above issues has been examined by the AO. The ld PCIT noted that it was required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others view has not been mentioned and the claim of expenses pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. Hon'ble High Court has also considered ratio of earlier decisions viz. decisions of Hon'ble Apex Court in the case of Rampyari Devi Sarogi vs CIT (1968) 67 ITR 84(SC), Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC) and the decision in the case of Malabar Industrial Company Ltd vs. CIT, 243 ITR 83 (SC) and decisions of Hon'ble Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises vs. ACIT (supra) while passing the order in favour of the revenue in the case of CIT vs. Nagesh Knitwears Pvt. Ltd. (supra). Therefore, based on these facts and circumstances, we uphold the order passed by ld PCIT under section 263 of the Act, dated 22.03.2019 and dismiss the appeal of the assessee. 31. In the result, appeal filed by the assessee in ITA No.313/SRT/2019, is dismissed. 32. In combine resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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