AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 1408
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....t"). Therefore, ground nos. 1 to 4 of all the appeals are dismissed as not pressed. 3. Ground no. 5 in all the appeals are against the action of the Ld. CIT(A) in upholding the addition of Rs. 27,28,000/- being bogus purchase of diamonds from M/s. Vitrag Jewels (hereinafter referred to as 'M/s. Vitrag') for AY 2008-09. Likewise, in AY 2010-11, the Ld. CIT(A) has confirmed the addition of Rs. 32,41,440/- being bogus purchase of diamonds from M/s. Kangan Jewels Pvt. Ltd. (hereinafter referred to as 'M/s. Kangan'). Likewise, for AY 2011-12, the Ld. CIT(A) has confirmed the addition of Rs. 38,99,463/- being bogus purchase of diamonds from M/s. Kangan. Similarly, for AY 2012-13, the Ld. CIT(A) confirmed the addition of Rs. 35,39,363/- being bogus purchase of diamonds from M/s. Kangan. Likewise, for AY 2014-15, the Ld. CIT(A) confirmed the addition of Rs. 37,50,000/- being bogus purchase of diamonds from M/s. Arihant Exports (hereinafter referred to as "M/s. Arihant"). Since the order passed by the Ld. CIT(A) is identically worded and the basis for addition in all the assessment years are the same except variance in figures, we take the lead case that of AY 2008-09 and the decision fo....
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....has disallowed the entire purchase from M/s. Vitrag on the basis that the assessee failed to produce the Principal Officer of M/s. Vitrag along with the books of account, so, he could not verify the genuineness of the transaction. On that basis, the AO disallowed the entire purchase made from M/s. Vitrag. In the appellate proceedings and on perusal of the appellate order it reveals that the Ld. CIT(A) has brought on record elaborately the background facts which prompted the AO to reopen the assessment of the assessee for all the assessment years before us. For better and easy understanding, in all the assessment years before us, the additions made were based on the allegation of bogus purchases of diamonds as stated by the accommodation entry providers which are given by a chart below: Sl. No. AY Section Addition Name of the parties 1. 2008-09 147 2,780,000 Vitrag Jewels 2. 2010-11 147 3,241,440 Kangan Jewels P. Ltd. 3. 2011-12 147 3,899,463 Kangan Jewels P. Ltd. 4. 2012-13 147 3,539,363 Kangan Jewels P. Ltd. 5. 2014-15 147 3,750,000 Arihant Exports 17,210,266 ....
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.... important to understanding the case is reproduced from question no. 16 and answer as under: "Q.16. Please refer to the detailed pictorial representation made by you in answer to question number 15 and explain the detail of each and every block of the pictorial representation diagram. Ans. Sir, In the pictorial diagram submitted by me, I explained the modus of various parties/persons/concerns involved at various blocks. The details of these block are explained as under.- A. This block A represents various concerns of domestic market, from which we take purchase bills of polished diamonds without actual delivery of diamonds, These bills are taken for a long credit period and usually they are not settled with the cheques but by the sale bills of rough diamond given by us to them. In usual circumstances the bills of polished diamond is only settled by the bills of the diamonds, however sometimes these bills are also settled by movement of cheques from one party to another. The purchase shown in our books from these domestic concern have a long credit period, as reflected in our books. These entries are merely paper transactions which are used for showing hig....
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....get compensated by the business income arising out of this operation in their respective concerns. D. The concerns mentioned in Block D are the concerns actually importing the diamonds without using their name and address, they utilize our service as name lender. The payments to the foreign parties against the diamonds imported are also monitored by the concerns mentioned in Block D. Therefore, the parties mentioned in Block D sometimes arranges the cheque payment by getting the sales bill issued by us to those concerns (Block E) interested in taking bogus purchase bills, for regularizing their books of accounts. Further, I would like to clarify that I don't know the actual reason for importing the rough diamonds in the name of concerns managed and controlled by us (Block C) . E. The concerns in Block E are the concerns that require bogus purchase bills for diamonds; however our concerns have bogus stock of diamonds in our books of accounts, which are shown to be purchased / imported from foreign concerns. Therefore, the diamonds shown to be purchased/imported from foreign concerns thus are against shown to be sold to the independent concerns mentioned in Bloc....
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....ions and answers in the impugned order the Ld. CIT(A) was of the opinion that he was convinced that the modus operandi adopted by all the three groups are similar, we note that another group's name is also figuring in i.e. of one Sanjay Choudhury group and the statement of one Sanjoy Chowdhury was also recorded which figures at page 39 of Ld. CIT(A)'s order (which has nothing to do with our assessee so it need not be discussed). We note that the Ld. CIT(A) has made his deductions based on the statement given by Shri Rajendra Jain who controlled M/s. Vitrag (2008-09) and M/s. Arihant (2014-15) and the Ld. CIT(A) after analysing the statement and pictorial description of the Modus operandi (supra) has made the following observations: "During the course of appellate proceeding the appellant submitted the bills issued by so called suppliers. Perusal of bills issued by M/s. VlTRAG Jewellers Ltd shows that it is printed on letter head. It does not have any receipt number on the invoice which is issued in letter form. The appellant invested its unaccounted money out of books in order to purchase diamond from grey market in cash which has been regularised through taking bogus book....
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.... payments have been made from unexplained cash. So far as payments through cheques to M/s. VITRAG Jewellers Ltd by the assessee are concerned, the same have been settled in cash subsequently as per the statements of these persons. Therefore, this amount of Rs. 27,28,000/- is treated as income from undisclosed sources of the assessee for the year under consideration which has been used for purchase of diamonds in cash from some unknown parties." The appellant nowhere has tried to prove the effective delivery of diamond from Sri Rajendra Jain rather M/s. VITRAG Jewellers Ltd. The aforesaid query raised by the AO has not been replied. The case laws cited by the appellant states about the taxability of gross profits in case of bogus purchases. But in non of the cases unrecorded cash deployed outside of books for purchase of diamond from grey market, and regularising through cheque/ledger in which such cash was not disclosed at all, has been dealt with. In this case it is clear that the aforesaid concern M/s. VITRAG Jewellers Ltd has not actually purchased any material nor sold any material, only bills were issued which shows that the appellant has purchased diamond fr....
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....firm the order of the AO disallowing the entire purchase made from M/s. Vitrag as well as M/s. Arihant as bogus purchases and made entire purchase from the said concern was added. However, we do not subscribe and are not accepting the transactions made by the assessee with M/s. Vitrag and M/s. Arihant as well as that with M/s. Kangan for AYs 2010-11 to 2012-13 as bogus for the reasons given below. 10. We note that AO exercised his power to reopen the assessment for AY 2008-09 on the following reasons recorded by him: "The reasons recorded u/s. 148 of the Act before reopening of the assessment reads as follows: From the specific information received from the director of income tax investigation W.N. Sikkim & NER, Aayakar Bhawan, Annexe P-13, Chowringhee Square, Kolkata-69 the communication has been received from the DGIT (Inv.), Mumbai, it is seen the Shri Manoj Begani, PAN ADPPB9417N assessed to tax with the jurisdiction, is one of the beneficiary. The information reveals that for the AY 2008-09 the above assessee has taken entry from one M/s. Vitrag Jewels. PAN AOVPK0047C Prop. Mudit Karnawat for a sum of Rs. 27,28,000/- in the guise of purchase. Thus it is se....
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....e statement of Shri Rajendra Jain and Shri Dharmichand Jain ( of Box 'C') concerns in the impugned order. As said earlier, in the instant case, the basis of re-assessment was only on the statement of Shri Rajendra Jain and Shri Dharmichand Jain. There was nothing else to support it. Next vital question is whether their statements be accepted as true? The value or weight to be attached to it fell within the exclusive jurisdiction of Revenue and Tribunal. With this back drop let us examine the statement of Shri Rajendra Jain and Shri Dharmichand Jain. 12. Let us have a look at the pictorial representation reproduced by the Ld. CIT(A) at page 34 which has been reproduced by us after para 6, supra and also go through the statement given by Shri Rajendra Jain explaining the modus operandi adopted by him. We note that his statement is riddled with inherent contradictions which we will highlight later. According to Shri Rajendra Jain, he controlled M/s. Vitrag and M/s. Arihant which are found placed in Box 'C' and the assessee is placed in Box 'E'. As per Shri Rajendra Jain, M/s. Vitrag and M/s. Arihant booked the order with the foreign diamond exporter concerns at Belgium (which is sh....
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....ich further get compensated by the business income arising out of this operation in their respective concerns. D. The concerns mentioned in Block D are the concerns actually importing the diamonds without using their name and address, they utilize our service as name lender. The payments to the foreign parties against the diamonds imported are also monitored by the concerns mentioned in Block D. Therefore, the parties mentioned in Block D sometimes arranges the cheque payment by getting the sales bill issued by us to those concerns (Block E) interested in taking bogus purchase bills, for regularizing their books of accounts. Further, I would like to clarify that I don't know the actual reason for importing the rough diamonds in the name of concerns managed and controlled by us (Block C) . E. The concerns in Block E are the concerns that require bogus purchase bills for diamonds; however our concerns have bogus stock of diamonds in our books of accounts, which are shown to be purchased / imported from foreign concerns. Therefore, the diamonds shown to be purchased/imported from foreign concerns thus are against shown to be sold to the independent concerns menti....
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....e the names of nine persons are given. So, according to the modus operandi as explained by Rajendra Jain, the assessee must have purchased the diamonds from the persons named in Box 'D' with the unaccounted money they have from the persons named in Box 'D' which is the grey market from where the assessee got diamonds. However, it is curious to note that the assessee issued the cheques in the name of the concerns controlled by Shri Rajendra Jain (M/s. Vitrag and M/s. Arihant) which in turn would give the bills and was only playing the role of an accommodation entry/bill to the assessee. We do not understand the logic behind such a circuitous route as suggested by Shri Rajendra Jain for the simple reason that admittedly, the concerns M/s. Vitrag and M/s. Arihant which falls in Box 'C' legally books diamonds from foreign diamond exporter concerns in Box 'B' which in turn ships diamonds on credit to concerns in Box 'C' of Shri Rajendra Jain; and what we fails to understand and defies logic is the alleged next part played by the assessee i.e. the assessee which falls in Box 'E' gives cheque/RTGS to concerns of Rajendra Jain in Box 'C' which is in turn transferred by Shri Rajendra Jain's....
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.... & polished diamonds for Rs. 27,28,000 (page 3-4) (b) Purchase day book showing purchase of diamond & other goods worth Rs. 1,64,57,538 as reflected in the audited accounts including purchases made from Vitrag Jewels of Rs. 27,28,000 (Page 7-8) (c) Ledger accounts of Vitrag Jewels for FY 07-08 & 08-09 (Page-14) (d) Copy of bank statement showing payments to Vitrag Jewels (Page 5-6) (e) Statement showing complete accounting of disputed purchase (Page 14) (f) Sales made out of the disputed purchase & payments recd. (Page 19-29) (g) Purchase & creditors figure (including amount payable to Vitrag Jewels as on 31.03.2008) as reflected in the audited a/c (page 10, 12) (h) Sales Tax return & VAT audit report reflecting the sales as shown in the audited accounts (page 30-43)." 15. We note that the AO disregarded all these documentary evidence and insisted the assessee to produce the Principal Officer of M/s. Vitrag and since the assessee failed to produce them, he made the disallowance of the entire diamond purchased by the assessee through cheques/RTGS. The assessee has produced the VAT return and VAT audit report also, whi....
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....ivered to persons in Box 'E' i.e. assessee and cheques/RTGS are issued in the name of the concerns controlled by Shri Rajendra Jain in Box C i.e. M/s. Vitrag and M/s. Arihant which in turn they utilised the cheques/RTGS given by the assessee to remit the foreign exchange to the foreign concerns in Box 'B'. So, from all these facts discussed above, the only probability is that the role of nine persons named in Box 'D' can only be that of Angadias and not as that what Shri Rajendra Jain has attributed them to do. No other role can be played by these people unless and otherwise the department is able to bring any evidence to show that after the issue of cheques/RTGS to Shri Rajendra Jain's concerns M/s. Vitrag and M/s. Arihant, the money component i.e. the unaccounted money of the assessee has been given back to the assessee, whereas it is clearly stated by Shri Rajendra Jain to Q No. 18 that cash component is generally settled by the key person controlling the concern in Box 'D' directly or indirectly by cheques/RTGS services of Angadia. So, therefore, the entire disallowance of the purchase/expenditure is based on surmises and conjectures; and the assessee by furnishing the document....
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....unted money/cash from assessee, while selling the diamond, then whether their (Box 'D' persons) statements against assessee was recorded. If so, whether the assessee was given a copy of that statement or did any of the nine persons in Box 'D' implicate the assessee. Even if persons named in Box 'D' statement were recorded, whether their statements were given to assessee and whether those persons were allowed to be cross examined by the assessee and without doing so, the material or statement collected on 03.10.2013, admittedly behind the back of assessee cannot be used against the assessee, without giving opportunity to cross examine as held by Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3. In the said case of Andaman Timber Industries (supra) the Hon'ble SC has held that the failure to give the assessee the right to cross-examine witnesses whose statements are relied upon results in breach of Natural Justice and it is a serious flaw which renders the order a Nullity. Without doing all the exercises as aforestated, how the so called unaccounted money supposed to be handed over by the assessee to 9 persons named in ....
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..../s. Vitrag Jewels 803C, Shrinathji Apartment, Rampura Main Road, Surat, Ph. No. 02613008385 AOVPK0647C GST 24220400561 CST 24720400561 18. The full details of the party has been given from page 18 to 21 of Ld. CIT(A)'s order wherein all the details regarding the sale and purchase have been given and reproduced. We note that the assessee had submitted audited books of account and the AO could not figure out any deficiency thereof. The AO disregarded the documents submitted during the reassessment which includes details of purchase, sale and profits, suppliers' bills and bills raised by customers, bank statement showing payment to suppliers and receipt from customers, stock reconciliation statement etc. The AO neither denies the sales which was made from the stock generated from the alleged bogus purchase of Rs. 27,28,000/- nor pointed out any quantitative discrepancy in the stock figure. The AO did not issue summons on the suppliers u/s. 131 of the act nor did he do any enquiry with the suppliers jurisdictional AO though PAN details were available. The AO did not do any enquiry with the sales tax authorities though VAT/CST no. was available. The AO did not enquire wit....
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....ns named in Box 'D' it was termed that the assessee has purchased diamonds from grey market.] f) VIth step. Since persons like assessee have purchased from grey market, and in order to keep the books of account properly, the persons like assessee in Box 'E' approaches Shri Rajendra Jain's concerns in Box 'C' for fake bills in lieu of commission. g) VIIth step. The Box 'C' concerns of Shri Rajendra Jain issued fake bills to persons named in Box 'E' for commission and acts as an accommodation entry provider. h) VIIIth step. The cheque/RTGS received from persons named in Box 'E' (assessee) is converted to foreign exchange and sent to the foreign suppliers to square up the transaction. i) IXth step. The cash component in the cheque/RTGS given by the persons named in Box 'E' (assessee) is given to persons named in Box 'D'. 21. The aforesaid is the modus operandi as suggested by Shri Rajendra Jain, which we do not accept because it is illogical and absurd on the face of it. It is like touching the nose not directly but by bringing the hand from behind the neck and touching it. If the aforesaid modus operandi is what is happening on the ground, then ....
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....ought by 'Angadias' to their respective show rooms for sale and once assessee selects and purchase the diamonds, cheques/RTGS are issued in the name of concerns issuing invoice/bills, which in this case is concerns legally importing diamonds named in Box C which fits into the modus as explained by assessee is plausible and after taking out the contradictions facts are corroborated by the statement of Shri Rajendra Jain. In the facts and circumstances the role of persons named in Box D can be that of Angadias or persons controlling them. What actually happen will be clear from the chart given below - 22. From the aforesaid pictorial chart the activities of persons/concerns in each Box is as stated and the numerical numbers are step by step activities in serial number of concerns in Box 'C ' Rajendra Jain's concerns place first the order (1) with foreign Belgium concerns for diamonds. The Box 'B' concerns, (2) takes the order and ships the diamond to Box 'C', then (3) the concern in Box 'C' collects the diamond sent by Box 'B', then (4) the diamonds are sent to concerns like assessee in Box 'E' and the (5) the concerns in Box 'E' purchases the diamonds and the (6) issues the ch....