TMI Blog2023 (9) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... in estimating the profit over and above the books results confirmed by the ld. CIT(A) is not in accordance with the law. Appeal of assessee allowed. - Dr. S. Seethalakshmi, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Shri Mukesh Khandelwal (C.A.) For the Revenue : Shri C.P. Meena (Addl.CIT) ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee aggrieved from the order of the National Faceless Appeal Centre, Delhi [here in after NFAC/Ld.CIT(A) ] for assessment year 2014-15 dated 22.03.2023, which in turn arise from the order dated 25.11.2016 passed under section 143(3) of the Income Tax Act, by ACIT, circle-1, Jaipur. 2. The assessee has marched this appeal on the following grounds:- 1. That under the facts and circumstances of the case, the ld. CIT(A) has erred seriously on facts in sustaining the action of the ld. AO in considering purchases of a sum of Rs. 3,21,93,468/- made from 11 parties as bogus. 2. That under the facts and circumstances of the case, the ld. CIT(A) has erred seriously on facts in sustaining the action of the ld. AO in making an addition of Rs. 80,48,367/-, being 25% of alleged bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Meenakshi Diamonds Pvt Ltd. 21,17,728 6 Navkar diamonds 34,20,565 7 Pushpak Gems 18,33,060 8 Rajan Diamonds 35,53,259 9 Roshan Gems Pvt. Ltd 24,97,360 10 Sonam Gems Pvt Ltd. 22,54,500 11 Suman Exports 64,22,280 Total 3,21,93,468/- 3.1 Based on the detailed discussion in the assessment order the ld. AO observed that the assessee is engaged in the business of purchase, sale, manufacturing and trading of gold jewellery with diamond and color stones, diamond and gems stones. During the year under consideration the assessee has purchased from the above parties amounting to Rs. 3,21,93,468/- based on the specific information by the DGIT(Investigation), Mumbai the case was selected for compulsory scrutiny. The ld. AO also noted that since the assessee concern is engaged in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries and had obtained accommodation entries in the form of bogus purchases to the tune of Rs. 3,21,93.468/- from the following 11 parties during the FY 2013-14: Name of the bill provider Amount in Rs. Aastha Impex 42,85,800 Maan diamonds 41,80,685 Malhar Exports 8,83,215 Manas Gems Pvt. Ltd. 7,45,016 Meenakshi Diamonds Pvt Ltd. 21,17,728 Navkar diamonds 34,20,565 Pushpak Gems 18,33,060 Rajan Diamonds 35,53,259 Roshan Gems Pvt. Ltd 24,97,360 Sonam Gems Pvt Ltd. 22,54,500 Suman Exports 64,22,280 Total 3,21,93,468/- 5.4 On verification of records, the AO after detailed discussion rejected the books of account u/s 145(3) and disallowed 25% of the said purchases making an addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to have effected purchases are providing bogus bills accommodation entries. Therefore, in the aforesaid context, the appellant was required to prove the genuineness of the purchases made from those parties. Merely filing bills, confirmation of account payments by cheque does not tantamount to discharge of the onus cast on the appellant especially when the department had received specific material/information from the Investigation wing, wherein Sh. Bhanwarlal Jain the suppliers operating the benami concerns, on oath had admitted the fact that they have merely provided entry / issued bills without physically selling/delivering any goods. Further, it was the duty of the appellant to establish the existence of aforesaid suppliers. It is observed that the purchases made by the appellant from the concerned parties remained unverifiable due to non-production of the parties. Production of suppliers assumes importance in view of specific information with the Department that the concerned parties from whom the appellant claimed to have purchased the goods have actually admitted of providing accommodation entries bogus purchase bills. Therefore, onus was on the appellant to satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine the parties was not given. The contention of the appellant is examined. At this juncture it would be relevant to take note of the decision of the High Court of Delhi in Suman Poddar Vs ITO which was affirmed by the Hon'ble Supreme Court in (2019) 112 taxman.com 330: The first, issue which has been raised by the assessee that it has not been confronted with the statements of various parties relied upon by the Assessing Officer. The assessee has also contended that opportunity of cross-examining those parties/persons was not provided to the assessee. According to the assessee, this resulted in the violation of the principles of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment. In this case, information has been provided by the DGIT(Inv), Mumbai after crystallization and in-depth investigation. It is observed that the AO has issued notices under sections 143(2), 142(1) of the Act, show cause and the appellant has been directed to furnish the documents. The appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner prejudiced the rights of the appellant to discharge the onus cast upon him. It is not in dispute that whatever information which was required to be made known to the appellant has been informed by issuance of a notice to which to the appellant has responded by submitting replies. Therefore, in the absence of any prejudice caused to the assessee on account of non-furnishing of the material relied upon or giving opportunity for cross examination, the appellant cannot claim that there has been violation of principles of natural justice and the right to defend itself was in any manner affected. 5.10 As held by several courts, the department is not required to lead clinching evidence to prove that purchases are bogus. The onus of proof at all relevant times rests upon the assessee. It is for the assessee to establish by evidence that a particular allowance is justified. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and circumstances / situations of the case as held by the Hon'ble Gauhati High Court in the case of Assam Pesticides Agro Chemicals V. CIT (1997) 227 ITR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds so raised and reiterated in para 2 above. The ld. AR of the assessee in support of the grounds so raised, filed a detailed submission which is reproduced here in below:- Brief facts of the case :- Assessment proceedings : The appellant company has been engaged into trading of diamond, gold jewellery etc. For the year under consideration it had filed its ITR on 24.09.2014 declaring an income of Rs. ,79,20,110. The case was selected for scrutiny and notice u/s 143(2) was issued on 30.09.2015. During the assessment proceedings the only point of examination was about the purchases made by the appellant from 11 parties. A search was undertaken by the investigation wing of Mumbai in the case of Bhanwar Lal Jain group of cases. The said Shri Bhanwar Lal Jain has been alleged to be an accommodation entry provider. In the search it came to the notice of the investigation wing that Shri Bhanwar Lal Jain was controlling various concerns which were issuing bills to various parties in India as accommodation entries. The appellant had also been alleged to had purchased diamond from eleven concerns alleged to be belonging to Bhanwar Lal Jain group. The ld. AO without sharing any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the audit report filed with the department - Pointing out any mistake in the records of the appellant which indicate that the accounts were not reliable and she has relied merely on the information in here possession as received from investigation wing of Mumbai The above approach of the ld. AO shows that she guided herself only with the information received from investigation wing of Mumbai and she had pre decided in her mind that 25% disallowance is to be made in the case. In this way her application of provisions of section 145(3) is illegal and unjustified and deserves to be quashed. Ground No. 1 : That under the facts and circumstances of the case, the Id. CIT (A) has erred seriously on facts in sustaining the action of the ld. AO in considering purchases of a sum of Rs. 3,21,93,468 made from 11 parties as bogus. The ld. AO has considered the purchases made by the appellant from 11 parties as bogus merely on the basis of the information passed on to her by Investigation wing of Mumbai. The appellant had submitted copies of the purchase bills, confirmation of the parties etc. (APB 2-34A) but she has not made any comments on such vital documents and she insisted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not possible by any stretch of imagination.. Regarding such addition reliance is placed on the following judgements of the Hon`ble ITAT :- i. Sanghavi Exports International P Ltd. v/s DCIT (Mumbai ITAT) (Case Law APB 1-9) : In this case the said party is into diamond export business. Its purchases from 11 parties belonging to Bhanwar Lal Jain group was doubted and the ld. AO made addition of the whole amount of purchases u/s 69C. On appeal the ld. CIT (A) deleted addition u/s 69C and restricted the addition to 3% of the purchases made from such 11 parties. On further appeal the Hon`ble ITAT after observing that the assessee had declared a GP rate of 7.17% which is reasonable deleted the addition of 3% also as made by ld. CIT (A). This cited case has exactly similar circumstances as that of present appellant and hence it is submitted that no further addition was required to be made by the ld. AO and the ld. CIT(A) when the assessee has already declared sufficient gross profit in diamond trade. ii. Vama International v/s ITO (Mumbai ITAT) (Case Law APB 10- 28) : The assessee is into diamond trade. Based on the information about search in the case of Bhanwar Lal Jain group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout the reasonableness of profit earned in diamond industry. It can not be anticipated that reasonable GP rate which was 6% during PY 2008-09 would rise to higher rate in future in this competitive world. The ld. CIT (A) has stated about applicability of this instruction in the case of the appellant at para 5.11 of his order at page 22 wherein he states that since the case of the appellant was selected manually on the basis of search in the case of Bhanwar Lal group and hence this instruction is not applicable in the case of the appellant as mentioned in the instructions itself. The instruction although states about such exclusion but it is not clear whether this exclusion is for searched person or for other persons also. From a plain reading it shows that this exclusion clause is applicable for the persons who have been searched and is not applicable on other persons. Therefore the conclusion of the ld. CIT (A) for applicability of this instruction is not correct and deserves to be quashed. The appellant had submitted all possible evidences in its possession to prove that all such purchases are genuine. Such documents include bills of purchases, confirmed account statements et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n submission so filed by the ld. AR of the assessee, he has vehemently argued that though the ld. AO alleged that the assessee has made the purchases which are termed as from the entry provider but at the same time he has agreed that the assessee has sold the goods also and therefore, he has estimated the profit @ 25 % ignoring the facts of the case. It is not disputed by the ld. AO that the assessee has not sold the goods which alleged to be purchased from the bogus bill provider but at the same time he observed that the assessee has taken the bill from those parties but the goods have been received from the different party as the sales is not disputed. Thus, the ld.AR of the assessee submitted that the dealing of the assessee in diamonds and jewellery is not doubted. The profit of diamonds business and the date of the jewellery is tabulated and disclosed @ 10.28% and 13.88% respectively, which are higher in terms of percentage for the various decision relied upon hereinabove and therefore there is no requirement to reject the books result declared by the assessee. The ld. AR of the assessee in support of the additional ground so raised in this appeal as ground No. 3 that while re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks are bogus based on the material placed on record whereas in this case the Assessing Officer in the assessment order recorded that finding that the purchases are in fact bogus but the material are received from the other person this it self proves that though it is alleged that the bills recorded in the books if found bogus the consequent goods have been received and the sales is also recorded in physical of those goods. Not only that in this case there is no finding that the bills and confirmation are also bogus or incorrect on the merit of the case. The ld. AR of the assessee relied upon the judgment of the Coordinate Bench of Mumbai and ITAT, Jaipur wherein the GP rate was accepted at lower than what is disclosed by the assessee. The ld. AR of the assessee further submitted that since the Board has categorically admitted that 6% GP rate to the fair enough if declared by the diamonds dealers whereas in this case for the year under consideration the assessee has disclosed GP @ 10.28%. The findings of the ld. CIT(A) that this instruction is not applicable is against the facts on record. Therefore on these issues, the ld. CIT(A) has erred in holding that the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of various persons ( who assist Bhanwarlal Jain in providing bogus purchases through benami concerns to the beneficiaries) were recorded. Mr. Bhanwarlal Jain in his statement accepted to the fact that he was engaged in providing bills and his reply relied upon by the ld. AO in his order is reproduced as under : I do agree that import of diamonds is made on behalf of various certain local parties who do not wish to show such imports in their books of accounts. On receiving the consignment, the material is handed over to real importer out of books. However, in the books of the concerns managed and controlled by me and my son Shri Rajesh Jain, the said consignment still appear as stock since the material has been sold to the real importer out of books. To show sales against the bogus stock outstanding in Books, bogus sale, bill are issued to parties against their purchases made in cash. These parties who take accommodation entry from your concerns make payment through RTGS. This RTGS is in turn used to make payment to the foreign parties from whom import has been made. The parties who have been given payment for such bogus purchase through RTGS want their cashback. In the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that the 'Benign Assessment Procedure', in the case of assessees engaged in diamond business as announced by Hon'ble Finance Minister in his Budget Speech on 28-2-2007 shall be as under : A. The procedure will apply to assessees engaged in the business of manufacturing and/or trading of diamonds (referred to below as such business). B. If an assessee has shown a sum equal to or higher than 6 per cent of his total turnover from such business as his income under the head 'Profits and gains of business or profession' for a particular assessment year, the Assessing Officer shall accept his trading results. C. (i) The assessee shall be required to maintain separate books of account of such business. (ii) Acceptance of profit at 6 per cent or above as per para (B) for a particular assessment year will not be a precedent for that assessee or for any other assessee. D. The procedure shall not apply to an assessee for an assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited. The assessee has placed on record the quantitative details and bills and consequent payment details which are not found faults by the lower authorities. Merely the Bhanwarlal Jain accepted that he is involved in giving the diamond in cash as well as by issuing the bogus bill too the lower authorities have confirmed the estimation of the profit. It is not disputed that the profit declared by the assessee for the diamond and jewellery business declared @ 11.98 %. Whereas the instruction of the board as reiterated here in above suggest that the profit declared 6 % by the assessee should be considered while accepting the income of the assessee dealing in diamonds. On going through the statement of Mr. Bhanwarlal Jain he has not stated that he is not engaged in the business of diamond but accepted the fact that he is giving the delivery of the diamond out of books and also issue invoice so where he gives diamond, he did not give bill and where he gives bill did not give diamond. The fact that the assessee has purchased the diamond is not disputed by the ld. AO. The bench so note that the ld. AO he invoked the provision of section 145(3) of the Act but the assessment is passed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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