9911796707
TMI Blog2023 (1) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... idated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No. 15/SRT/2020 for AY.2007-08, have been taken into consideration for deciding the above appeals en masse. 3. The grounds of appeal raised by the Revenue as per lead case, in ITA No. 15/SRT/2020 for AY.2008-09, are as follows: "(i) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 20,48,83,051/- made on account of bogus purchase and instead erred only in upholding commission income @ 0.50% of the Rs. 20,95,86,838/- whereas the assessee was engaged in bogus purchase from four concerns controlled by the entry provider. (ii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A), while accepting the figure of bogus purchases at Rs. 20,95,86,838/- erred thereafter by not enhancing the addition to the extent of differential amount of Rs. 47,03,787/- [Rs. 20,95,86,838 - Rs. 20,47,83,051/- (figure of bogus purchases adopted by the AO)]. (iii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in giving relief on the basis of decision in the case of the assessee for the A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch lead into invoking of provisions of section 147 followed by issuance of notice u/s. 148 of the Act after recording reasons for such reopening of assessment as required under these provisions. Accordingly, notice u/s. 148 dated 31.03.2015 was issued and served upon the assessee. The assessment was reopened by the AO by recording reasons. The assessment was reopened after examining the information received 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 Gautam Jain and his group concern 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 interested 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of the concerns in 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. All these dummy directors/partners/proprietors were paid salary not profit/remuneration. These dummy directors/partners/proprietors were paid salary mostly in cash. At times the salary was disbursed to them on need basis, as and when required. It was observed that the profit of the concerns in which employees are shown as directors, partners and proprietors are maintained more or less equivalent to their annual salary. In the regular books of the said concerns, the profit is shown to be appropriated by the concerns and for doing miscellaneous office work, looking after banking transactions and data entry of the accounts etc. From the above, it clearly indicates that these employees are completely dependent on Gautam 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices and residential premises of the said group concerns and the Gautam Jain and others in Mumbai and Surat were covered during the search action. However, the Income Tax Authorities did not find any books of account of the said group benami concerns at any of the premises. 8. During the course of search, evidences were found; persons were examined on oath which established that Gautam Jain and others have been using group benami concerns to give accommodation entries in the nature of bogus purchase and bogus unsecured loans to various beneficiaries. There are many players in the diamond market who purchase diamond from the grey market and are in need of bogus purchase bills to regularize the corresponding sale. Further, there are others who want to take accommodation entries of bogus purchases expenses. All such parties approach the Gautam Jain to get bogus import diamonds on behalf of real importers to whom these diamonds are handed over out of books. But in the regular books of accounts of the benami concerns, the imported diamonds still appears as stock (bogus). This is the reason why during the search no stock of diamond was found from any of the residential or business premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Thus, in the books of accounts of the assessee, the purchase to the extent made from the above said parties remained unverifiable and hence undersigned arrived at a conclusion that the purchase shown by the assessee in the books of accounts are bogus purchases and debited to trading account to suppress the true profit to be disclosed before the department. (iv) The onus was upon the assessee to establish the genuineness of purchases made by the assessee. (v) Mere filling of evidences in support of purchases and payment through account payee cheque cannot be conclusive in a cause where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct. (vi) If all the evidences point to the fact that no actual goods were supplied by the above any entry providers, then the argument of the assessee that it purchased goods is not tenable. Thus, from the above analysis of the facts, it is crystal clear that the purchases made by the assessee from the above party and claimed as expenses in its profit and loss account are not genuine. In view of the above discussion and the defects pointed out, the books of accounts of the assessee were rejected u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public and private business in their relation to the facts of the particular case. Considering the facts and circumstances of the case discussed above, the assessing officer held that it is a clear that the assessee had obtained the bogus bills to the tune of Rs. 20,48,83,051/- from M/s Krishna Diam Pvt. Ltd. respectively, without actually getting the material (diamond). Thus, the bill issued by the said group concern is nothing but accommodation entry. Hence, the accommodation entry received from M/s Karishma Diamond Pvt. Ltd., M/s Parshwanath Gems P. Ltd., M/s Mihir Diamond and M/s Krishna Pvt. Ltd. to the tune of Rs. 20,48,83,051/- is treated as bogus purchases and added to the total income of the assessee." 12. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has dismissed the technical ground raised by assessee about validity of reassessment u/s 147 of the Act, observing as follows: "7. DISCUSSION AND DECISION OF THE APPELLATE AUTHORITY Ground regarding validity of re-opening and assessment there-on; 7.1.1 This ground of appeal pertains to validity of re - opening of the case u/s 147 of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m v/s CIT 5 ITR 464 - 488 - Gurmuh Singh v/s CIT 12 ITR 692 713 - International Forest v/s CIT 101 ITR 721 ITO v/s Ponkunnam 102 ITR 336 Narayan v/s CIT 20 ITR 287 ; in ITR 361; Nagulokonda v/s CIT 31 ITR 781; Thomakutty v/s CIT 34 ITR 501 Koyanmankutty v/s ITO 58 ITR 871 ; Radheylal v/s CIT 4 ITC 454 ; Gargi v/s CIT 96 ITR 97; Hirji v/s CIT 105 ITR 286 (sec 271). However, quashing reopening and assessment on this ground would mean that the appellant is given undue benefit of mistakes by an individual officer. This is neither fair nor equitable for the revenue. Hence, this ground is not allowed. 13. On merits, Ld. CIT(A) held as follows: "7.2 Ground regarding disallowance of bogus/ unverified purchases 7.2.1 (a) On perusal of the assessment order and submission of AR, it appears that the Ld. AO has held that assessee has made unverified purchases made from concerns belonging to one Gautam Jain Group. The Ld. AO relied on information and reports received from DIT(Inv.) Mumbai. The appellant produced before Ld. AO, the confirmation from suppliers, invoices ledger a/c, bank a/c showing cheque payments, Stock register etc. The ld. AO was not satisfied with explanations & eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per Written Submission dated 25.02.2015 filed before AO the assessee has contended that "he was commission agent of rough & polished diamond in Surat making sales Land purchases on behalf of some diamond trades for which he was receiving commission. Though sales and purchases were recorded in books of accounts but they are for inventory purpose and no trading account is made for that. Income and expenditure account is made wherein commission income earned is credited and expenses incurred for earning commission income are debited. During the year under consideration, I did business as commission agent in proprietary concern with name and style of Sanman Exports." Having reproduced the contention raised by the assessee, ld. AO has given her finding which is totally in contrast to the claim of the assessee. She has observed on Pg. 6 point No. 8 of assessment order as under: "Since last many years he has been filing return of income as trader in rough and polished diamonds and has been filing return of income as trader only by mentioning the nature of business as trader in ITR Form 4." 7.4 On my direction, Ld. AR of the appellant has furnished copies of Audit Report with final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock tally product wise, quantity wise which is tallied without having any shortfall or discrepancy therein to indicate bogus purchases as such. Appellant has stated that goods purchased have been later sold to principals after adding up his mark up as commission ranging from 0.12% to 0.15% thus difference of sales & purchase is commission earned by the appellant which is shown as gross receipts in Audited Income & Expenditure A/c at Rs. 6,67,276/during the year. During appellate hearings, the assessee has also submitted date-wise break up of commission income which was duly found corroborated with the claim of the appellant. On the basis of above submission, it has been established beyond doubt that assessee's case is of a "commission agent" where only markup (profit margin)on purchases have been shown as income, therefore, question of disallowance of entire purchase amount as "bogus purchases" does not arise especially when the assessee has 'neither shown sales in P & L A/c nor claimed such purchases as expenditure. Once it is established that the appellant has not claimed any deduction for purchases exp. including Rs. 2,01,61,565/- then this amount cannot be disallowed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish that purchase price & sale price, charged (after markup) are as per market price. Besides this, ld. AR also could not do one to one mapping of impugned purchases with sales to show as to how much commission income was earned on each such alleged purchases vis-vis other purchases amounting to Rs. 2,01,61,565/-. This puts the entire transaction under a shadow of doubts about unverifiability of purchases price and commission charged on such transactions and therefore I presume that assessee must have purchased the goods from grey/open market & bill must have been obtained from party to support the purchases and price shown in said bill was inflated in order to suppress the profit commission income. There is nothing on record to accept the possible contention of the assesse that price paid to said party was at the Arm's Length Price (ALP). The surrounding circumstances and statement of Shri Gautam Jain casts enough doubts about the genuineness of purchase transactions. On the basis of preponderance of probability, it could be said that book results are not showing true & correct picture leading to rejection of book results u/s. 145(3) of the Act (not mentioned explicity b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from them, the above finding of Ld. CIT(A) is applicable mutatismutandis to current year. Further, as already stated the Ld. AO has not given any contrary findings or rebutted this explanation of assessee furnished before him during assessment proceedings. Following the above order the suppressed commission is estimated at 0.50% of impugned purchases Rs. 20,95,86,338/-, which works out to Rs. 10,47,931/- for A.Y.2008-09 and 0.50% of impugned purchases Rs. 1,57,66,522/- which works out to Rs. 78,832/- for A.Y. 2009-10. The ground of appeal is partly allowed. 8. In the result the appeal is Partly Allowed." 14. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. 15. Learned CIT-DR and Learned Sr. DR for the Revenue, both have vehemently argued that no documentary evidences have been filed by the assessee, before the Assessing Officer, to show that assessee is a trader. As the assessee is Pucca Arahita, and such Pucca Arahita is normally treated as a trader. The Ld. DR pointed out that on page No. 23 of the order of the ld. CIT(A), the Ld. CIT(A) made contradictory findings in its order, therefore assessee is a normal trader. The Ld. DR also pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n different commodities in different parts of the country. The primary necessity in each instance is to ascertain with precision what are the express terms of the particular contacts under consideration. Each transaction, therefore, requires to be examined with reference to its terms and conditions and no hard and fast rule can be laid down as to whether the agent is acting only a an agent or also as a principle. 4. The Board are advised that so far as kachha arahtias is concerned, the turnover does not include the sales effected on behalf of the principals and only the gross commission has to be considered for the purpose of section 44AB. But the position is different with regard to pacca arahtias. A pacca arahtias is not, in the proper sense of the word, an agent or even del credere agent. The relation between him and his constituent is substantially that between the two principles. On the basis of various court pronoucements, following principles of distinction can be laid down between a kaccha arahtias and a pacca arahtia: (1) A kachha aiahtia acts only us an agent of his constituent and never acts as a principal. A pacca arahtia, on the other hand, is entitled to substitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit report and Form No. 3CD. 18. On the other hand, Ld. Counsel for the assessee submitted that first of all the statement recorded under section 132(4) has not been provided to the assessee, hence it is violation of principle of natural justice. The ld Counsel stated that assessee is a pucca Arahita. The Ld. Counsel also stated that even if assessment order was made by the Assessing Officer under section 144 of the Act, the Assessing Officer has to refer the return of income filed by the assessee. Therefore, the best judgment assessment framed by the Assessing Officer under section 144 of the Act, in case of ITA No. 87/SRT/2017 for AY.2007-08 may be quashed. 19. The Ld. Counsel, also argued that reasons recorded by the Assessing Officer are defective and bad in law, and therefore the reassessment proceedings may be quashed. 20. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that assessee has neither filed cross-objection nor file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 the beneficiaries, who had availed accommodation entries from such hawala trader. At the time of recording reasons, the mere suspicious about the accommodation entry is sufficient as held by Hon'ble jurisdictional High Court in various cases. To support his submissions, the ld.CIT-DR relied upon the decision; Pushpak Bullion (P) Ltd Vs DCIT [2017] 85 taxmann.com 84(Gujarat High Court), 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 Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon case laws: 1 M/s Andaman Timber industries Vs Commissioner 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) 6 CIT in Vs. Mohmed Juned Dadani 355 ITR 172 (Gujarat) 7 Micro Inks Pvt. Ltd. Vs. ACIT [2017] 79 taxmann.com 153 (Gujarat) 8 Shakti Karnawat Vs. ITO - 2(3)(8), Surat ITA 1504/Ahd/2017 and 1381 /Ahd/2017 9 Asian Paints Ltd. Vs. DCIT, [2008] 296 ITR 90 (Bombay) 10 PCIT, Surat 1 Vs. Tejua Rohit kumar Kapadia [2018] 94 taxmann.com 325 (SC) 11 The PCIT-17 vs. M/s Mohommad Haji Adam & Co. ITA No. 1004 OF 2016(Bombay High Court) 12 Pankaj 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 submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 reopening 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 jurisdiction for making re-opening under section 147 on the basis of information of investigation wing Mumbai. So far as other submissions of the ld AR for the assessee that there is no live link of the reasons recorded, we find that the Hon'ble Jurisdictional High Court in Peass Industrial Engineers (P) Ltd clearly held that when assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases 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 regard of the disputed purchases of Rs, 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/ material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the ld CIT-DR for the revenue vehemently submitted that 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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
