TaxTMI 
TaxTMI 
2018 (4) TMI 1623
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.....49 crores 2009-10 30.09.2009 4.16 lacs 30.33.2015 1.20 crores 2.During the course of hearing,the Authorised Representative(AR)did not press first five grounds of appeal.Hence, same stands dismissed as not pressed. ITA/7102/Mum/2016,AY.2007-08: 3.Effective Ground of appeal,raised by AO,is about not sustaining addition of Rs. 3.65 crores made under the head peak credit of transactions related to bogus purchases.The AO had received information from the office of the DGIT(Inv.),Mumbai regarding search actions which were carried out in the cases of Bhanwarlal Jain Group and Rajendra Jain Group.As per the informa - tion of the investigation wing,Bhanwarlal Jain(BJ)and other persons associated with him as well as Rajendra Jain(RJ)and person of his group had admitted, under oath during the course of search and seizure proceedings,that they were providing accommodation entries for bogus purchases, through their various benami concerns.On the basis of the information received,the AO held that the assessee had obtained non-genuine bills form following five entities: Name Amount 1.M/s. A2 Jewels(AJ)- Rs.1.88 crores 2.M/s. Daksh Diamonds(DD)- Rs. 33.87 lakhs 3.M/s.Jewel D....
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....no justification for restricting the addition to 12.5%.He relied upon the case of N K Proteins Ltd.(2017-TOIL-23-SC-IT,dated 16/01/2017). The Authorised Representative(AR)argued that the AO had not provided opportunity of cross examining BJ,that from day-one the assessee was asking for cross examination, that he had raised a specific ground before FAA about not following the principles of natural justice and denying the opportunity of cross examination by the AO, that the FAA wrongly stated that request by assessee was made late, that AO had rejected the books of account without finding any defect in them, that on the basis of uncorroborated statement of third parties books of accounts should not have been rejected,that assessee had filed the evidence to prove genuineness of purchases, that it had filed ledger account(Pg.36 of the PB),copy of bank statement,confirmation letter(Pg.49 of the PB),purchase bill, copy of acknowledgement of return of income for the AY.2007-08 from LD along with bank statement of the supplier, that it had also filed an affidavit of the supplier stating that disputed transaction was genuine, that similar documents were also submitted for JD, DD,AJ and Vit....
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....are that, the assessments for the Assessment Years 2011-12 to 2013-14 were reopened u/s. 147 of the Act based on the information received from DGIT(Investigation), Mumbai that the assessee is one of the beneficiaries of bogus purchases made by certain entities operated/managed by Bhanwarlal Jain group which is only a bogus concern. During the course of search, Shri Bhanwarlal Jain has admitted in the statement taken on oath u/s. 132(4) of the Act that he has indulged in providing accommodation entries and also admitted that these are paper companies with no real business transactions. It was also admitted by him that he was engaged in business of bill shopping through all the concerns due to which they do not have any physical stock of diamond with them at any of its places at any point of time. It was also admitted that they were merely lending names of various concerns to importer of diamonds who takes actual delivery. Based on this information from DGIT(Investigation) the assessments were reopened and in the course of re-assessment proceedings assessee was required to prove the genuineness of the purchases made from the entities operated by Shri Bhanwarlal Jain. Assessee furnish....
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....refore, the Assessing Officer concluded that the material was debited against various suppliers have entered into stock register and the assessee has shown corresponding sales against the said purchases debited and this could only mean that the diamonds were brought by the assessee from the gray market without bill and to adjust these transactions into the Books of Accounts, assessee has obtained bills from Shri Bhanwarlal Jain group concerns. Therefore, he concluded that the assessee obtained only the bogus bills without movement of goods and goods were purchased in gray market by paying cash. Therefore, taking note of all these factors into consideration the Assessing Officer in so far as the Assessment Years 2012-13 and 2013-14 treated 12.5% of the purchases as non-genuine and in so far as Assessment Year 2011-12 is concerned 100% of the purchases were treated as bogus purchases. 5. The Ld.CIT(A) upheld the action of the Assessing Officer in treating the purchases as nongenuine as there is no movement of goods and it was admitted by Shri Bhanwarlal Jain that they are providing only accommodation entries and there was no real transaction. The Ld.CIT(A) also accepted the action ....
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....anted a registration under the new GST Act as well. The Sales Tax Department has not initiated any action against the assessee for disallowance of set-off in respect of VAT paid on the purchases from the impugned parties. 8. Learned Counsel for the assessee further submitted that the AO did not appreciate the fact that the assessee purchased diamonds from the impugned parties and there is a practice of hand delivery of such precious and low-weighing materials. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries. 9. Ld. Counsel for the assessee submitted that, the credit period of six months is very common in the diamond industry. The AO's observation in the order for AY 2011-12 that unreasonable credit period has been granted by Daksh Diamonds is factually incorrect. The AO has mentioned that all the parties have been paid regularly except for Daksh Diamond. However, out of total purchases of Rs..9,47,27,364/- outstanding creditors at the year-end were Rs..4,49,93,630 which is almost 50%. Even the purchase made prior to purchase from Daksh Diamond was also outstanding e.g. purchase of Rs..26,54,752/- from Vaishali Gems dated 2....
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....es below. Ld. DR further submits that as per the CBDT instructions profit margin for the diamond trade is 6% and therefore at least 6% is to be estimated as the profit element from these purchases following the CBDT Instructions. 16. We have heard the rival submissions, perused the orders of the authorities below. In this case the assessments were reopened based on the information from the DGIT(Investigations), Mumbai that assessee is a beneficiary from the entities operated by Shri Bhanwarlal Jain wherein the search took place and it was found that Shri Bhanwarlal Jain is providing only accommodation entries and there were no actual sale transactions. Assessing Officer observed that the assessee could not prove the movement of goods from the suppliers to the assessee. In the absence of delivery challans and based on the statements of Bhanwarlal Jain that they have provided only accommodation bills, the Assessing Officer has concluded that the assessee has obtained only bogus bills and assessee might have purchased goods in gray market. The Assessing Officer estimated the Gross Profit Margin on such purchases at 12.5% for the Assessment Years 2012-13 and 2013-14. For the Assessme....
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.... purchases made by the appellant that cannot be set aside summarily. Therefore, the conclusion drawn regarding the purchases made from M/s.Daksh Diamonds being entirely bogus, is not justified. 15. In this regard, the ratio was laid down by the Hon'ble High Court of Bombay in the case of CIT v.Nikunj Eximp Enterprises(P.)Ltd.,is very relevant,wherein it was held that- "When the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assesses. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them." 16.The facts and circumstances as outlined above, clearly suggest that the purchases by the appellant from M/s.Daksh Diamonds cannot be doubted but a major flaw in these transactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address. Thus the purchase prices show....
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....13, while deciding a similar issue the Hon'ble High Court of Gujarat has held that: "We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and nonexistent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee s theory that the....
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....e purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s.Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @ 12.5% is applied on such total alleged bogus purchases amounting to Rs. 1,05,18,970/-,the additional gross profit on such purchases would come to Rs. 13, 14, 871/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and th....
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....ird parties, especially when those parties have responded to the notice issued u/s.133(6) of the Act by filing all necessary documents to prove that they have made sales to the assessee. It is also the submission of the assessee that none of the impugned parties have been declared as Hawala dealers or suspicious dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of the statement given by the Bhanwarlal Jain group. The assessee has furnished all necessary evidence to prove the genuineness of the purchases, the parties have also responded to the notices u/s. 133(6) of the Act by filing necessary evidence as to prove that the purchases are genuine. Thus the assessee discharged the onus to prove the genuineness of the transactions made by the assessee from the impugned parties. The Assessing Officer completely failed to make further enquiries in these cases. The documents furnished by the supplier of the goods have not been disproved by the Assessing Officer in these matters. 19. We also find that the Coordinate Bench in the case of Indo Unique Trading Pvt Ltd. v. DCIT in ITA.No. 6341/Mum/2016 considered almost an identical ....
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....As per Ld A.R, the statement given by Shri Bhanwarlal jain is a general statement only. The assessee, as stated earlier, has furnished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents. 12. In view of the foregoing discussions, we are of the view that the assessee has duly discharged the burden to prove the genuineness of purchases. On the contrary, the AO has simply relied upon the report given by the investigation wing. In this view of the matter, we are of the view that no addition is called for on account of alleged bogus purchases. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition." 20. In view of what is discussed above,we are of the view that the assessee has duly discharged its burden of proving the genuineness of the purchases and the Assessing Officer without making proper investigation, simple relied on the statements of third party to treat the purchases as bogus. Assessing Officer could not prove that the information furnished by the suppliers are not genuine so as to treat the sales made by the....
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....und is about addition of Rs. 79,80,000/-.During the assessment proceedingings,the AO found that the assessee had taken unsecured loans of Rs. 79.80 lakhs.After discussing the modus operandi followed by BJ Group,the AO treated the amount in question as unexplained cash credit,invoking the provision of section 68 of the Act. 8.1.In the appellate proceedings before the FAA,the assessee made detailed submissions.After considering the assessment order and the submission of the assessee,the FAA held that he had received unsecured loan of Rs. 79.80 lakhs from LD,that he had admitted that loan was received through banking channels and that same could not be considered as unexplained cash credit,that during the appellate proceedings the assessee had changed its stand,that before him the assessee claimed that it had received advances from LD,that it was also claimed that advances received were for business purposes and that disputed amount was returned back to LD.The FAA further observed that it did not furnish details of the business deals which did not materialize.Finally,he upheld the order of the AO. 8.2.Before us,the AR argued that supporting evidences-to prove genuineness of loan lik....
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....nsecured loans from M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems, which are belonging to Shri Bhanwarlal Jain. The AO accordingly formed an opinion that the income to the tune of Rs. 2,02,62,016/- has escaped assessment within the meaning of section 147 of the Act and accordingly reopened the assessment by issuing notice under section 148 of the Act dated18.3.2015 and ultimately the assessment was completed vide order dated 4.3.2016 passed under section 143(3) read with section 147 of the Act assessing the total income of the assessee at an income of Rs. 1,66,31,511/- as against the earlier assessment made at Rs. 33,82,280/- made under section 143(3) dated 20.3.2013 thereby making two additions namely unexplained cash credit from the parties referred hereinabove of Rs. 1,29,04,231/- and unexplained expenditure of Rs. 3,45,000/- under section 69C of the Act. The assessee filed before the AO various informations/details like loan confirmations from the lenders, ledger account, PAN of the parties, Profit & Loss account and the and other three appeals balance sheet etc including the bank statement of the lenders and also of the assessee confirming the receipt of money throu....
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....tries arranged on commission basis. The AO accordingly computed 3% of Rs. 1,15,00,000/- as undisclosed expenditure within the meaning of section 69C of the Act. In this way addition of Rs. 3,45,000/- was made to the total income of the appellant. 5.2 During the course of appeal proceedings, no one appeared nor was any written submission made. In the statement of facts and grounds of appeal only general facts are stated. In absence of any written submission and/or document to substantiate the argument of the appellant against the view taken by the AO in the assessment order it is held that the AO has rightly made the addition. The grounds of appeal no.2 is accordingly dismissed. Aggrieved by the order of the FAA, the assessee is in appeal before us. 6. The ld. AR vehemently submitted before us that the order upholding the addition by the FAA was wrong and against the provisions of the Act. The ld. AR respectfully submitted before the Bench in order to make addition u/s 68C of the Act when the following three things are not establishedi.e. (i) identity of the creditors (ii) genuineness of the transactions and (iii) creditworthiness of the creditors. The ld.AR submitted that the o....
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.... PAN, loan confirmations and bank statements, in such an eventuality, no addition can be made u/s 68 of the Act. According to the ld.AR, the AO merely proceeded on the basis of information received from the third party and framed the assessment by making additions by stating in the assessment order that the explanation of the assessee is not acceptable. The ld. AR further relied upon the number of decisions like : i) CIT V/s Varinder Rawley (2014) 366 ITR 232 (P&H); ii) CIT V/s Sachital Communications (2014) 227 Taxman 219 (Mag); iii) CIT V/s Patel Ramniklal Hirji (2004) 222 Taxman 15 (Mag); iv) CIT V/s Jaikumar Bakliwal (2014) 366 ITR 217 (Raj); v) Nemi Chand Kothari V/s CIT (2003) 264 ITR 254(Gauhati); vi) CIT V/s Shalimar Buildwell Pvt (2014) 220 Taxman 138) (All); vii) CIT V/s Lalpuria Construction P L (2013) 215 Taxman 12(Mag) (Raj) viii) M/s Rushabh Enterprise V/s ACIT (Mum) WP 167/2015 and other three appeals ix) Andaman Timber Industries V/s CCE (2015) 281 CTR 0241 (SC) x) CIT V/s M/s Ashish International in ITA 4299/Mum/2009 7. Per contra, the ld.DR relied upon the orders of the authorities below by submitting that the loan creditors M/s Bhanvarilal J....
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....ntity of the creditors, genuineness of the transactions and creditworthiness of the creditors have been established by the assessee. So much so that the loan creditors in response to the notice issued under section 133(6) appeared before the AO and confirmed the that they have given interest bearing loans to the assessee on which TDS have been deducted and paid and form no.16A issued to the loan creditors also filed before the AO. Once the assessee has filed all and other three appeals the necessary documents before the AO then the onus is shifted to the department to disprove the stand of the assessee, which department has failed to do so in the present case. The AO has merely proceeded and relied on the information received from the DGIT(Inv), Mumbai that the assessee is one of the beneficiary of the accommodation entries without bringing any material against the assessee on record by contrary to the defense put up by the assessee during the course of appellant proceedings. No cross examination was allowed to the assessee and information was used against the assessee causing violation of natural justice. The FAA dismissed the appeal of the assessee exparte for non attendance of t....
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.... truly all material facts - Held, yes. In the case of Smt. Sangmitra Bharali (upra) the Hon'ble Gauhati High-Court held as under : " I. Section 68, read with sections 45 and 54F, of the Income-tax Act, 1961 - Cash credits (Undisclosed income v. LTCG) - Assessment year 2001-02 - Assessee held shares of company BPAL just for a period over 12 months and declared sale value 25 times more than purchase price - Company BPAL was not found at given address nor were its directors traceable - Purchase was not made through banking channel nor purchase price was verifiable in any way - Whether it was simply a sort of modus operandi to convert undisclosed income into a long-term 'capital gain' claiming same to be exempted invoking section 54F - Held, yes [Para 44] [In favour of revenue] II. Section 68 of the Income-tax Act, 1961 - Cash credits (Advance by purchaser) - Assessment year 2001-02 - One VHPL allegedly advanced assessee cash against booking of flat - Assessee proved that amount so received was duly recorded in books of account of VHPL - Identity of VHPL was also established by filing its IT returns, balance sheets, etc. - Whether no addition could be made in hands of asses....
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....is that four depositors furnished requisite details to prove their identity and showed the place of their residence. The loan was received through account payee cheques. Copies of Bank Statements was given and the details of PAN were available. All the materials duly proved the genuineness of the transaction of loan as well as creditworthiness of the depositors. Hence, the addition u/s. 68" In the case of Jaikumar Bakliwal (supra), the Hon'ble Rajasthan High Court has held as under: "Three things are required to be proved by recipient of money i.e. (1) identity of the creditor (2) capacity of the creditor to advance money and (3) genuineness of the transaction. Held, dismissing the appeal, that all cash creditors were assessed to income-tax and they proved a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash creditorsappeared before the Assessing Officer and their statements under Section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence ....
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....ally belonged to the assessee, but this conclusion cannot be reached by mere failure on the part of the sub-creditor to show his creditworthiness and/or the genuineness of the trsnaction between the creditor and sub-creditor, for, the creditor may receive any amount from sources known to the creditor only and if he fails to show how he has received the amount, in question, or if he fails to show the creditworthiness of his subcreditor, such an amount may be treated as the income from undisclosed source of the creditor or of the sub-creditor, as the case may be, but such failure, on the part of the creditor cannot, in the absence of any clinching evidence, be treated as the income of the assessee derived from undisclosed source. :Held (i) that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him, under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafte....
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....rading Co. and Mls. Rose Impex were also parties in the case of the assessee. In the case of Andaman Timber Industries (supra), the Hon'ble Supreme Held as under :. "Not allowing the assessee to cross exarrune the witnesses by the Adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullify in as much as it amounted to violation of principles of Natural Justice because of which the assessee was adversely affected." The order was vacated. The aforesaid view was earlier considered by the Jurisdictional High Court in the case of CIT v. Ashish International. In our considered view the facts of the assessee case are squarely covered by the ratio laid down in the decisions referred to above. We ,therefore , in view of our observations and the ratio laid down by the various decisions are inclined to set aside the order of CIT(A) and direct he AO to delete the additions of Rs. 1,29,04,231/-. Since we have decided the issue of addition u/s 68 in favour of the assessee, the addition as sustained by the ld CIT(A) u/s 69C of the Act of Rs. 3,45,000/- is also ordered to be deleted. In result the....