TMI Blog2022 (12) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... ved earlier not only there existed new information with the AO from the credible sources, but also he had applied his mind and recorded the conclusion that the purchases claimed were non-genuine and therefore bogus, (clearly meaning that what was disclosed was false and untruthful). The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening is held justified and legal. Therefore, we dismiss ground no.1 and 3 raised by the assessee. Estimation of income on bogus purchases - We notice that the issue is squarely covered by the decision of the Coordinate Bench of Surat in the case of Pankaj K. Choudhary [ 2021 (10) TMI 653 - ITAT SURAT ] and there is no change in facts and law, therefore respectfully following the binding precedent, we direct the Assessing Officer to sustain the addition at the rate of 6% of bogus purchases. - ITA No. 121/SRT/2019 ITA No. 107/SRT/2019 - - - Dated:- 20-9-2022 - SHRI PAWAN SINGH , JM And DR. A. L. SAINI , AM Assessee by : Shri Mehul Shah , CA Respondent by : Shri Vinod Kumar , Sr. DR ORDER PER DR. A. L. SAINI , AM : Captioned two appeals filed by the Revenue and Assessee, pertaining to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contrary to the terms of the statute. The appeal under consideration has certainly been filed contrary to the Circular issued by the CBDT Circular No.17 dated 08.08.2019. Therefore, we dismiss the appeal filed by Revenue. 8. In the result, appeal filed by the Revenue (in ITA No.121/SRT/2019) is dismissed. 9. Now, we shall take assessee s cross appeal in ITA No. 107/SRT/2019 for the same assessment year 2008-09, wherein the grounds of appeal raised by the assessee are as follows: 1. On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in re-opening assessment u/s 147 by issuing notice u/s 148 of the IT. Act, 1961. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in partly confirming the action of assessing officer in making addition of Rs.4,27,264/- out of total addition of Rs.88,45,263/- being disallowance on account of bogus purchase. 3. It is therefore prayed that assessment framed u/s 144 r.ws. 147 of the Act may kindly be quashed and/or addition made by assessing officer may please be deleted. 4. Appellant craves leave to add, alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the DIT (Inv.), Mumbai and recording satisfaction for reopening by the AO. A Search and Seizure action was conducted in the premises of Shri Rajendra Jam, Shri Sanjay Chaudhary and Dharmichand Jain his group concerns on 03.10.2013 by the DGIT (Inv), Mumbai. During the course of Search proceedings, it was established that the group concerns are all paper companies / firms/ Proprietorship concern with no real business activities, operating solely with the purpose of facilitation of fraudulent financial transactions which includes, providing accommodation entries in the form unsecured loans to interest parties, issuing of bogus sales / purchase bills to various parties and providing a bogus front to concerns which do not want to import diamonds in their own hands. Ongoing through the documents forwarded by the DIT (Inv), Mumbai, it was found that the assessee has obtained accommodation entries of bogus purchase from the concerns of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain Others, during the financial year 2007-08 relevant to AY 2008-09, the detail of which is given as under: Sr. No. Name of the Entry Provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted on oath that they were merely employees of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others and were looking after miscellaneous office work like depositing cheques in banks, handling over parcels to clients, making data entry etc. Since these persons were employees and were associated with the office work, they do have perfunctory knowledge about the nature of business activity of the concerns, which they are shown as Directors, partners and proprietors. However, all of them do not have any technical or in depth knowledge of diamond industry like assorting cutting, manufacturing etc. From the above, it clearly indicates that these employees are completely dependent on Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others and have no stake whatsoever in the business of the concerns in which they were shown as directors, partners and proprietors and it was the later who manage the business affairs of all the concerns with whom these employees have lent their name. 13. The assessing officer observed that all the concerns are shown to be engaged in import of diamonds. However, when these name-sake directors/ Partners/ Proprieto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained at the respective registered offices: The registered offices and residential premises of the said group concerns and the Shri Rajendra Jam, Shri Sanjay Chaudnary and Dharmichand Jain and others in Mumbai and Surat were covered during the search action. However, the team of the Income Tax Authorities did not find any books of account of the said group benami concerns at any of the premises. 14. Therefore, assessing officer observed that during the course of search, evidences were found, persons were examined on oath which established that Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain and others have been using benami concerns to give accommodation entries in the nature of bogus purchase and bogus unsecured loans to various beneficiaries. Examination on oath of trusted employees of Shri Rajendra Jain, Shri Sanjay Chaudhary and Dharmichand Jain for giving such accommodation entries of bogus purchases and loans and advances to various beneficiaries. There are many players in the diamond market who purchase diamond front the grey market and are in need of bogus purchase bills to regularize the corresponding sale. Further, there are others who want to take ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has dismissed the technical ground of the assessee challenging the validity of reopening of assessment under section 147 of the Act. 18. Shri Mehul Shah, Learned Counsel for the assessee, pleaded that reopening of assessment, in the assessee`s case, is after the period of four years and there is no failure on the part of the assessee, to disclose fully and truly of all necessary facts for making the assessment. The Ld. Counsel submitted that in reasons recorded, the Assessing Officer mentioned that assessee does not have PAN Number, however the assessee is having valid PAN Number. In the reasons recorded status of the assessee is not mentioned. The Ld. Counsel also pointed out that no reference of original assessment order is given in the reasons so recorded by the assessing officer. The Ld. Counsel also pointed out that in reasons recorded no reference of the reopening of assessment after four years has been given stating that there was failure on the part of the assessee to disclose fully and truly all material facts, necessary for assessment Therefore, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose and intent of the provisions. One of the purposes of Section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be travesty of justice to allow the assessee that latitude. 21. The Hon'ble Gujarat High Court in the case of Dishman Pharmaceuticals and Chemicals Ltd. vs. DCIT (OSD), Ahmedabad (2012) 346 ITR 228 (Guj) has summed up the requirements of the law, in such circumstances and has held that: There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bhanwarlal Jain Group. The assessee has shown a very meagre gross profit (GP) @ 0.78% and not net profit (NP) at 0.02%. The ld. CIT(A) restricted the addition to the extent of 12.5% which is on the lower side. The ld. CIT-DR for the revenue prayed that disallowance made by the AO may be upheld or in alternative submitted that it may restricted at least @ 25%, keeping in view that the NP declared by the assessee is extremely on lower side. 13. On the validity of reopening, the ld.CIT-DR for the revenue submits that the AO received credible information about the accommodation entry provided by Bhanwarlal Jain Group. The assessee is one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 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, the disallowance may be sustained on reasonable basis. To support his various submission, the ld.AR for the assessee is relied upon case laws: 1 M/s Andaman Timber industries VsCommissioner of Central Excise, CIVIL APPEAL NO. 4228 OF 2006 (Supreme Court) 2 CIT vs. Indrajit Singh Suri [2013] 33 taxmann.com 281 (Gujarat) 3 Albers Diamonds Pvt. Ltd. Vs ITO 1(1)(1), Surat I.T.A. No.776 1180/AHD/2017 4 The PCIT-5 vs. M/s. Shodiman Investments Pvt. Ltd. TTANO. 1297 OF 2015 (Bombay High Court) 5 ShilpiJewellers Pvt. Ltd. vs. Union of India Ors. WRIT PETITION NO. 3540 OF 2018 (Bombay High Court) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the accommodation entry operators. The accommodation entry provider admitted before investigation wing that he has given such entry to various persons; based on such report the AO has reason to believe that the income of the assessee has escaped assessment and thus the action of AO in reopening is justified. 18. We find that the Hon ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd Vs DCIT (supra) while considering the validity of similar notice of reopening, which was also issued on the basis of information of investigation wing that they have searched a person who is engaged in providing accommodation entries, held that where after scrutiny assessment the assessing officer received information from the investigation wing that well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in re-opening assessment. Further similar view was taken by Hon ble Jurisdictional High Court in Pushpak Bullion (P) Ltd Vs DCIT (supra). Therefore, respectfully following the order of Hon ble High Court, we find that the assessing officer validly assumed the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before CIT(A) the disallowances were maintained. However, the Tribunal gave partial relief to the assessee directing to sustain the addition @12% of such bogus purchases. And on further appeal, the Hon'ble High Court sustained Gross Profit Rate @ 5% being average rate of profit in industry. 20. Now adverting to the facts of the present case, the ld.CIT(A) held that in some other similar cases; though he had sustain 5% of Gross Profit Rate, considering the fact that where Gross Profit shown by those assessee s are 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. 21. We have seen that during the financial year under consideration the assessee has shown total turnover of Rs. 66,09,62,458/-. The assessee has shown Gross Profit @ .78% and net Profit @ .02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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