TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 1103
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....me-tax (Appeals) erred in holding that the learned Assessing Officer had validly issued the notice u/s, 148 I.T. Act, 1961 without appreciating the fact that proceedings u/s 147 of the I.T. Act, were initiated merely on the basis of information from the DGIT (Inv.) and not on based on proper application of mind on the part of the learned Assessing Officer so as to come to an independent conclusion that he has reason to believe that income has escaped assessment during the year. 2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Assessing Officer in rejecting the books of account and thereby confirming the addition of Rs. 5,44,037/ - being 9% of the purchases of Rs. 60,44,860/- which were held to be not genuine by the learned Assessing Officer, though the said purchases and the corresponding sales were duly reflected in books of account and payments for the said purchases were made by account payee cheques and the corresponding sales were also recorded in books of account. 3. Your appellant craves leave to add, alter or amend any of the above grounds of appeal or take up a f....
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.... Jain situated at 316, Pancharatna, Opera House, 210 Panchratna, 105 Panchratna which was having ownership of Banwarlal Jain group. All these proprietors, directors and partners were kept for the name sake and they were not aware of importers or actual buyers shown in the books of account. Statements were recorded u/s 132 and 131 of 1961 Act , whereby these employees have accepted and admitted that they were dummy proprietor, director and partners of various concerns whose affairs are managed and controlled by Banwarlal Jain group. The statements of these employees were confronted to Banwarlal Jain and in the statement recorded u/s 132(4) of the Act at 16, Mohan Building, Girgaum, Mumbai, Shri Banwarlal Jain admitted that he manages and controls the business affairs of all the concerns in which the persons were employees, who were shown as proprietor, director and partners. It was also admitted that all the benami concerns were not in the genuine business and no stock of diamond was found from the premises. The books of accounts of all these persons were not maintained in respective office and were found from back office 16, Mohan building, Girgaum, Mumbai and at Flat No. 233, Grou....
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....d copy of invoices, copy of account of parties, extract of stock register , copy of bank account from wherein cheques were reflected. Notices u/s 133(6) of the Act were issued to the above referred parties which were Benami of Sh. Banwarlal Jain from whom purchases were claimed to have been made by the assessee to produce the following details:- "1. Your P.A.N and details of Income Tax Assessing Officer. 2. Nature of business activity undertaken by you. 3. Whether any amount is outstanding, if yes, please furnish the same with reference to your return of income filed by you i.e. sundry debtor/creditor highlighting the entries in the same. 4. Please confirm whether you have done transaction with Shri Suresh Satyani (Prop of Satyani Brothers), If yes, explain nature of transaction. 5. Please produce copy of the account with Shri Suresh Satyani (Prop of Satyani Brothers) for F.Y. 01.04.2009 to 31.03.2010. 6. Please produce copy of acknowledgement of your return for AY 2010- 11. 7. Please explain from where you had purchased material which in turn was supplied to Shri Suresh Satyani (Prop of Satyani Brothers). Please also produce proof. 8. Please produce copy of your bank accou....
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....ills from these parties who were benami entities of Mr Bhanwarlal Jain. Books of accounts were rejected by the A.O. u/s 145(3) of 1961 Act. The AO relied on decision of Hon'ble Gujarat High Court in the case of CIT v Chandra Vilas Hotels (1987) 164 ITR 102(Guj.) , CIT v. Navasari Cotton and Silk Mills Limited (1982) 135 ITR 546(Guj) and Karjan Co-operative Cotton Sales Ginning and Pressing Society v. CIT (1993) 109 ITR 17(Guj.) , Hon'ble Delhi High Court in CIT v. Nipun Builders and Developers Private Limited in ITA no. 120/2012 dated 07-01-2013 and CIT v. N R Portfolio Private Limited in ITA no. 1018/1019 of 2011 dated 22.11.2013. The A.O. relying on the ratio of the decision of in the case of Sanjay Oilcake Industries v. CIT 316 ITR 274 (Guj), Bholanath Polyfab Pvt Ltd 40 Taxman 494(Guj) and M/s. Vijay Proteins Ltd. (1996) 58 ITD 428 (Ahd) and 25% of such purchases of Rs. 60,44,860/- stood disallowed by the AO treating as element of profit embedded in the transaction , which led to disallowance to the tune of Rs. 15,11,215/- and for the purchases made by the assessee from M/.s. Navkar Diamonds and Mayur Exports aggregating to Rs. 19,31,040/- , it was observed by the AO that the s....
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....n is to be adopted. Thus, the learned CIT(A) restricted the addition to the total income to 9% of the purchases of Rs. 60,44,860/- , which works out to Rs. 5,44,037/- which bring the net margin to 7.22% on total turnover, vide appellate order dated 29-04-2016 passed by ld. CIT(A). 5. Aggrieved by the appellate order dated 29-04-2016 passed by the ld. CIT(A), the assessee filed an appeal before the Tribunal. 6. The ld. Counsel for the assessee submitted that the assessment was reopened u/s 147/148 of the Act. The assessee raised objections to re-opening but the A.O. rejected the same. It was submitted that original assessment was framed u/s 143(1) of the Act and the re-opening was done within four years from the end of assessment . The reasons recorded for re-opening have been placed in the paper book page No. 3. It is submitted that search and seizure operation was carried out u/s 132 of 1961 Act in the case of Bhanwarlal Jain group and based on this the reopening of assessment was done u/s 147 of the Act. The assessee had raised objections which are placed at paper book page No. 7 to 9. The A.O. disposed of the objections and passed order dated 09-01-2015, copy of which is place....
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....ch is fair and reasonable . It is submitted that learned CIT(A) considered the average margin from assessment year 2008-09 to 2012-13 for applying this rate of addition which is fair, reasonable and rational, whereby net margin of the assessee on total turnover has gone up from 4.52% to 7.22%. During search proceedings u/s 132(1) of 1961 Act, Shri Bhanwarilal Jain admitted in the statement recorded u/s 132(4) of 1961 Act that he was instrumental in providing bogus/ accommodation entries by providing bogus invoice towards bogus purchases. The benami companies/entities were created by said Mr Bhanwarlal Jain in the name of his benami's who were his employees to undertake these bogus transactions. The notices u/s 133(6) of 1961 Act were issued to various employees-benamis of Mr Bhanwarlal Jain who did not supplied the information sought by the AO. The assessee furnished their affidavit before learned CIT(A) but could not produce these parties before the AO/CIT(A) for recording their statements. 6. We have considered rival contentions and also perused the material available on record including the case laws relied upon. We have observed that the assessee is engaged in business of tra....
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....ns / entities who wanted bills to cover their sales in books of account. No material was supplied against these bogus bills which were merely accommodation / hawala entries. These parties issued cheques to benami concerns of Mr Bhanwarlal Jain against which cash was handed back by these benami concerns to the parties who obtained bills from concerns of Bhanwarlal Jain. These concerns who used to obtain bogus bills from Mr Bhanwarlal Jain benami concerns, used to actually purchase diamonds from grey market at low cost and to save taxes etc. were using front companies of Mr Bhanwarlal Jain . The foreign suppliers used to supply diamond to benami concerns of Mr Bhanwarlal Jain on credit basis. The proceeds of cheques so obtained by these benami concerns from these bogus bills issued to various concerns were utilized to make payment for imports. We find that the assessee filed its return of income with Revenue on 26-09-2010 which was processed by the Revenue u/s 143(1) of the Act. Thus, there was no scrutiny assessment u/s 143(3) r.w.s. 143(2) of 1961 Act framed by Revenue against the assessee. The case of the assessee was re-opened by the AO u/s 147 of 1961 Act by issue of notice dat....
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....rters by these benami concerns of Mr Bhanwarlal Jain , who used to pay cash against these supplies of diamond to them made without any invoices. The intention of these importers was to suppress turnover and consequently profits. Thereafter, to complete books of accounts, these benami concerns of Mr Bhanwarlal Jain used to issue bogus bills to various concerns who wanted bills to cover their sales in books of account. No material was supplied against these bogus bills issued by the said benami concerns of Mr Bhanwarlal Jain. These parties issued cheques to benami concerns of Mr Bhanwarlal Jain against which cash was handed back by these concerns to the parties who obtained bills from concerns of Bhanwarlal Jain. These concerns who used to obtain bills from Mr Bhanwarlal Jain benami concerns, used to actually purchase diamonds from grey market at low cost and to save taxes etc. were using front concerns of Mr Bhanwarlal Jain . The foreign suppliers used to supply diamond to benami concerns of Mr Bhanwarlal Jain on credit basis. The proceeds of cheques so obtained by these benami concerns from these bogus bills issued to various concerns were utilized to make payment for imports. Ther....
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....pt of tangible and material incriminating material by the AO from DIT(Inv) incriminating assessee as detailed above , the assessment was reopened u/s 147 of the Act based on such tangible and material incriminating information , and notices u/s 148 was issued by the AO on 26th March, 2014, which is issued within four years from the end of the assessment year. Thus, it cannot be said that the Revenue has reopened the assessment based upon suspicion rather genesis of re-opening is incriminating information received from DIT(Inv), Mumbai based on information received from DIT(Inv) which in turn was based on search and seizure operation u/s 132(1) of 1961 Act carried out in the case of Mr Bhanwarlal Jain group case, wherein he deposed in statement recorded u/s 132(4) of 1961 Act of being engaged in providing bogus accommodation entries without supplying any material wherein only bogus bills were issued and the cheque amount was returned back to the beneficiaries in cash . The assessee is stated to be beneficiary in the said list of having allegedly received entries from 2 bogus accommodation entry providers who were acting as front and benami concerns of Mr Bhanwarlal Jain to the tune ....
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....admissible, but which was not claimed in the return was to be allowed; (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such returns accounts or documents were prima facie inadmissible was to be disallowed. 12. What were permissible under the first proviso to section 143(1)(a) to be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. 13. One th....
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....er for the purposes of section 246 between 1-6-1994, to 31-5-1999, and under section 264 between 1-10-1991, and 31-5-1999. It is to be noted that the expressions "intimation" and "assessment order" have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes "the computation of income", sometimes "the determination of the amount of tax payable" and sometimes "the whole procedure laid down in the Act for imposing liability upon the tax payer". In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to 1-4-1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent....
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.... any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where income chargeable to tax has been under assessed; or (b) where such income has been assessed at too low rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Incometax Act, 1922 (11 of 19....
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....ncome escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18.....
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....applicable in the instant case under appeal before the tribunal. The incriminating tangible and material information so received by the AO is with regard to the facts previously disclosed which has comes into possession of the AO which tends to expose the untruthfulness of those facts as were disclosed in the return of income by the assessee, which return of income was incidentally also not scrutinized by the Revenue. The incriminating information so received by the AO in the instant case which became foundation for re-opening of the assessment was sufficient to form reasons to believe by the AO that income has escaped assessment, as the assessee was specifically incriminated in the said information having received bogus accommodation entries for purchases to the tune of Rs. 19,31,040/- from 2 bogus entry providers being hawala traders providing accommodation purchase bills without actual delivery of material . In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information exposing un-truthfulness of information furnished in return of income filed with Revenue. We a....
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....n of proving that fact is upon him. Illustrations (a)**** (b) A is charged with traveling on a railway without a ticket. The burden of proving that he had a ticket is on him." The assessee was not able to discharge burden cast u/s 106 of 1872 Act as the assessee did not file documents for showing movement of goods from supplier to assessee as evidence nor these parties were produced before the Revenue. The assessee did not submitted documentary evidence to show that there was movement of goods . The assessee filed before the learned CIT(A), affidavits executed by these parties from whom the assessee made purchases wherein these parties have submitted that transactions were genuine. The same parties while deposing before DIT(Inv) in an statement recorded u/s 132/131 of the Act have expressed their lack of knowledge about the state of affairs of these concerns as well admitted that they do not have knowledge of diamond trade. The said Mr Bhanwarlal Jain when confronted with statements u/s 132 and 131 of these persons, admitted while deposing statement u/s 132(4) to be engaged in providing hawala/accommodation entries. The AO relying upon judicial precedents made the disallowance t....
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....turer and trader of diamond, gold and jewellery. Principles of res-judicata is not applicable in the income tax proceedings and every year is a different year although we agree that principles of consistency is to be applied (Ref Radhasoami Satsang v. CIT (1992) 193 ITR 321(SC) ) . The assessee cannot take recourse to estimation done by another learned CIT(A) while adjudicating appeal of another tax-payer whose facts are different and in any case estimation requires some guess work based on facts on records which need to be reasonable, realistic, rational and fair estimation based on honest working and should not be arbitrary or perverse estimation which obviously requires some guess work. In such circumstances, profits needs to be estimated which definitely involved some estimation/guess work but the said estimation/guess work should be fair , honest and rational keeping in view factual matrix of the case and cannot be arbitrarily applied at the discretion of authorities . We have gone through the case laws relied upon by the assessee. Reference is drawn to decision of Hon'ble Supreme Court in the case of Kachwala Gems v. JCIT (2007) 288 ITR 10(SC) , wherein Hon'ble Lordships held....
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....at appellant has shown bogus purchases, and the books of account were wrongly rejected. 10. In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of account, cogent reasons have been given by the income-tax authorities for doing so, and we see no reason to take a different view. 11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion, there was no arbitrariness in the present case on the part of the incometax authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. No costs." In our considered view in the instant case learned CIT(A) made an honest attempt to estimate net margin on total turnover by adding to income 9% of bog....