TMI Blog2023 (1) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... el, as in assessee`s case the original assessment was framed under section 143(3) of the Act, wherein the assessing officer had never discussed the issue of bogus purchases. The issue pertaining to bogus purchases was fresh issue before the Assessing Officer and it is a fresh and new information therefore assessing officer has rightly reopened the assessment. We note that reasons were recorded by the Assessing Officer within the legal framework of provisions of section 147 of the Act therefore, second objection/question raised by the ld Counsel is hereby rejected. As observed earlier not only there existed new information with the Assessing Officer 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 the additional ground raised by the assessee. Estimation of income - bogus purchases - Since, the issue under consideration is squarely covered by the judgment of the Co-ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) should have treated the whole amount of these purchases as income of the assessee as assessee reduced his income to this extent by inflating his purchases by this amount in his P L account. iii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in accepting the plea of the assessee that proper books of accounts and stock register was maintained without considering the fact that no such books of account and documents were produced before the AO. Ld. CIT(A) did not give any opportunity to the AO to rebut the contention of the assessee raised before him and relied upon the judicial pronouncement, facts of which are different from the instant case. iv) On the facts and in the circumstances of the case and in Law, the Ld.CIT(A)- 1, Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-3 Surat may be set-aside and that of the Assessing Officer's order may be restored. 3. Grounds of appeal raised by the assessee in Cross Objection No.10/SRT/2021, are as follows: 1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purely a legal issue and all facts are already on record which goes to the root of the matter and no further inquiry is required for deciding the same as all facts are already on record. Therefore, in the light of ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee. 9. First we shall take this additional ground raised by the assessee in its cross objection. 10. Brief facts qua the issue are that assessee filed original return of income for A.Y.2008-09 declaring total income at Rs.4,76,841/- on 25.09.2008. The return was processed u/s 143 (1) of the Act. Subsequently, information was received from the Director of Income Tax (Inv)-II, Mumbai regarding the sharing of information in the case of beneficiaries of accommodation entries related to Shri Pravin Jain group and Gautam Jain Group wherein details of the beneficiaries who have taken bogus purchase / sale accommodation entries in the A.Y.2008-09 and details of beneficiaries who have taken these bogus accommodation entries in the A.Y. 2008-09. As per the information received, it was mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the assessee company was engaged in the business of diamond trading. During the reassessment proceedings, the assessee had furnished details of parties from diamonds have been purchased during the year under consideration. On verification of the same it is found that the following concerns are fictitious and belongs to Shri Pravinkumar Jain and Shri. Gautam Jain Group. The details of which are as under: Sr. No. Name of the entry provider Amount (in Rs.) 1. M/s Karishma Diamond Pvt. Ltd. 14466087/- 2. M/s Krishna Diam Pvt Ltd 30363304/- 3. M/s Mihir Diamonds 25943727/- 4. M/s Parshwanath Gems Pvt Ltd. 52190279/- 5. M/s Ansh Merchandise Pvt Ltd 32556059/- 6. M/s Mohit International 10675016/- 7. M/s Casper Enterprise Pvt Ltd. 7980000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and paid by me. Also, in case some person required entry for unsecured loan, I give the entry by giving them cheque and in return I receive cash for the same. But most of the times it so happens that I have to pay this cash back to some parties to get cheque entry in my books again so as to maintain the balance in bank accounts. Normally, there is no surplus cash which remains available with me at any point of time. All the local purchases, local sales and loan entries appearing in my books of accounts of the above 2 concerns controlled by me are totally bogus entries which were done against cash taken/given against such entries. None of these entries reflect any genuine transaction at all. (iii) Shri Gyanchand Bhanwarlal Jain director of M/s. Karishma Diamond Pvt. Ltd., M/s. Parshwanath Gems Pvt. Ltd, M/s. Krishna Diam Pvt. Ltd has stated in his statement recorded during search proceedings in the case of Gautam Jain Group that the concerns namely M/s. Karishma Diamond Pvt. Ltd., M/s. Parshwanath Gems Pvt. Ltd, M/s. Krishna Diam Pvt. Ltd are all nothing but paper concerns with no actual business of any kind in diamond trading. All the bills issued for sales since the inception ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to supplier through cheque as per my convenience. The payment made by me by cheque is returned to me in cash by the broker in India. There are certain parties in the market who want accommodation entries for the purchase of diamonds in their books. Such parties either approach me or my network of brokers for an accommodation entry in the nature of bogus purchase of diamonds. The payment received from the party for accommodation entry of bogus purchase is used to give entries of unsecured loans and investments to builder, jewelers, and businessmen and corporate for which I earn an interest of about 0.15% to 0.20% per month. The cash is received back from the builder/real estate company who takes an accommodation entry for unsecured loan/advance. The cash received from the builder/real estate company is paid to the party to whom the bogus sale of diamonds is made to square off the transaction. After a period of about 6 month to 1 year, the payment is made to the party based in Hong Kong or Dubai is square off the transaction which was shown as outstanding creditors in my books. The cash received is paid to the builder/real estate company to square off the transaction. Sir, the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the referred parties/ suppliers, Declaration from the referred parties/ suppliers regarding genuineness of their business transactions. Reply: I have carefully gone through all the materials in the Party wise purchase and sales purchase registers stock registers, ledger account of purchase parties, movement of goods and copy of the bank statement etc., have been carefully considered by me. This documentary evidences and proof are sufficient and acceptable if it is a matter of normal scrutiny assessment. The most important aspects should not be lost sight of that but for the search and seizure and unearthing of incriminating evidences, the nature of bogus accommodation entry, bills against the cash would not have come to the lime light. The search and seizure action is the most stringent and effective action by the department for the purpose of unearthing undisclosed income/ finding incriminating evidences. The search and seizure action is a rare and uncommon action which to some extent amount to encroaching upon the privacy of private citizen. And therefore such action is taken seldom and with an extreme care and caution and conducted by the highest investigation authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be made over and above the net profit declared in the return of income filed. Accordingly, Rs.17,41,74,472/- on account of unexplained source of Purchase u/s. 69C of the Act, added to the total income of the assessee for the year under consideration. 14. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee, observing as follows: 7.8 In this factual background, the question arises as to what should be the profit estimation. On one side, the assessee is showing GP/NP at the rate of 2% (maximum) approximately in various years which I have found quite low in comparison to industry average. On after hand Ld AR has also placed reliance on Gujarat High Court decision in the case of Mayank Diamond Pvt Ltd. wherein Hon'ble court has upheld NP @ 5%. On this basis, Ld AR has pleaded for application of the ratio of said decision. I have perused the above cited decision found the same applicable to the facts of this case. Following the binding precedent of Hon'ble Gujarat High Court in the case of Mayank Diamonds Pvt. Ltd. (Supra), entire purchases could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer, that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for making assessment. The ld DR pointed out that in assessee`s case the original assessment was framed under section 143(3) of the Act, wherein the assessing officer had never discussed the issue of bogus purchases. The issue relating to bogus purchases, is a fresh issue, and such fresh information was not there with the assessing officer at the time of making original assessment for A.Y. 2008-09, under section 143(3) of the Act dated 24.10.2010, hence the AO was right in reopening the assessment. 19. The ld DR also stated that there is no bar to record the reasons three times in case of the assessee. In every reason so recorded by the AO, there is a fresh amount ( figure) which has escaped assessment and total amount of these three reasons comes to Rs.17,46,51,313/-, which is matching with these three reasons and there is no repetition. In fact, the AO has made the addition to the tune of Rs.17,46,51,313/-. Further section 147 does not say that reasons should be recorded only at one time in case of an assessee. More than one reason may be recorded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year. Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year beginning on or before the 1st day of April, 2012. 21. From the above section 147 of the Act, it is vivid that assessing officer may reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. Thus, it is abundantly clear that Assessing Officer may reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148 of the Act. Therefore, there is no restriction on the number of reasons to be recorded, that is, reasons may be recorded twice, thrice etc. as per the circumstances, hence we do not agree with the ld Counsel to the effect that reasons cannot be recorded three times. 22. The second question of ld Counsel is that assessment was reopened after a period of four years and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for making original as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment beyond the period of four years in the case of an assessee firm; and had held that in case of acquiring fresh information specific in nature and reliable, relating to the concluded assessment, which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Income Tax Officer would have jurisdiction to reopen the concluded assessment. The Apex Court in the case of Phul Ghand Bajrang Lal (supra), observed as following: ...one has to look to the purpose 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new information with the Assessing Officer 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 the additional ground raised by the assessee. 29. On merit, we note that Revenue s appeal in ITA No.89/SRT/2017 for AY.2008-09 and Assessee`s CO.No.10/SRT/2021, are squarely covered by the judgment of Co-ordinate Bench of ITAT, Surat in the case of Pankaj K. Chaudhary, in ITA No.1152/AHD/2016, dated 27.09.2021, wherein the Tribunal held as follows: 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 investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 submits that in the original assessment, the assessee filed its complete details of purchases to prove the genuineness of expenses. The AO accepted the 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 Investigatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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, which was vague about the alleged accommodation entry by Bhanwarlal Jain Group. And that there was no specific information about the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 was sustained to the extent of 12%, on the observation that the assessee may have made purchases from elsewhere and obtained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 30. Since, the issue under consideration is squarely covered by the judgment of the Co-ordinate Bench of ITAT, Surat in the case of Pankaj K. Chaudhary (supra). There is no change in facts and law and the Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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